Royal Mail has warned it faces an additional £120 million in costs due to the upcoming increase in employers’ National Insurance contributions announced in the latest Budget.
The loss-making Postal Service said the rise would disproportionately affect its operations due to its large workforce of about 130,000 employees.
The company, part of International Distribution Services (IDS), also announced it would reduce Royal Mail by £134 million to £1.91 billion to reflect the increased tax burden. This comes at a time when retailers and the hospitality industry are already expressing serious concerns about the impact of higher taxes on businesses.
Royal Mail and IDS are currently in a state of uncertainty. The board has approved a £3.6bn takeover by entities controlled by Daniil Kretinski, the Czech energy tycoon who owns significant stakes in PostNL, Sainsbury’s and West Ham United football club. However, the Labor government called for a “national interest” review of the takeover. The government stated that it would approve the deal only if Kretinsky maintained a “comprehensive global service” and provided workers with a “stronger voice in the management and strategic direction of the company.”
For the six months to September, Royal Mail reported a loss of £138 million, an improvement on a loss of £383 million in the same period the previous year. This came despite an 11% increase in revenue to £3.92bn, supported by increased postal activity in the July general election period.
The international courier division, General Logistics Systems (GLS), traditionally seen as the strongest part of the group, reported a 4% increase in revenues to £2.43bn, but saw profits fall 20% to £112m. , citing “macroeconomic pressures.” In major markets such as Germany and Italy.
The company expects Royal Mail to return to profitability for the full year to March, excluding costs associated with its ongoing redundancy programme. However, she cautioned, “the financial and regulatory backdrop adds cost and inflexibility to the business.” Royal Mail reiterated its call for government reforms to its Universal Service Obligation, which currently requires it to deliver letters six days a week across the UK at a flat rate.
In last month’s Budget, Chancellor Rachel Reeves announced plans to raise nearly £20bn a year by increasing employers’ National Insurance contributions from 13.8% to 15% from next April. The threshold at which employers start paying the top rate will also be reduced from £9,100 to £5,000, attracting more part-time workers into the band.
Despite the challenges, Martin Seidenberg, chief executive of IDS, has assured customers that Royal Mail is prepared for the busy Christmas period. “As we enter our busiest period, we are well prepared for Christmas deliveries, with around 4,000 new vehicles being delivered ahead of the peak, an additional 16,000 walk-ins, extended delivery hours until 8pm, and our growing network of parcel lockers and parcel shops,” he said. .
Seidenberg stressed the company’s commitment to controlling what it can, but expressed concern about rising costs. “We are implementing changes that we can control, but the cost environment is getting worse at a time when we need to invest. As a major employer with around 130,000 permanent employees, the changes to National Insurance will disproportionately impact our business compared to competitors,” he added. It makes comprehensive service reform more urgent.