Royal Mail has warned it will face a further £120 million in costs as a result of the upcoming increase in employers’ national insurance contributions announced in the recent Budget.
The heavily loss-making postal company stated that the increase will have a disproportionate impact on its operations due to its large workforce of approximately 130,000 employees.
The company, which is part of International Distribution Services (IDS), also announced it would write down the value of 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 limbo. The board has agreed to a £3.6 billion takeover by entities controlled by Daniel Křetínský, a Czech energy magnate with significant stakes in PostNL, Sainsbury’s and West Ham United Football Club. However, the Labor government has called for a review of the takeover in “national interest”. The government has said it will only approve the deal if Křetínský “maintains a comprehensive universal service” and gives employees “a stronger voice in the governance and strategic direction of the company.”
For the six months ending September, Royal Mail reported a loss of £138m, an improvement on the £383m loss in the same period last year. This is despite an 11% increase in sales to £3.92 billion, boosted by increased postal activity around the July general election.
Its international courier division, General Logistics Systems (GLS), traditionally seen as the strongest part of the group, reported a 4% increase in turnover to £2.43 billion, but saw profits fall 20% to £112 million, citing “macroeconomic pressure” in key markets such as Germany and Italy.
The company forecasts that Royal Mail will return to profitability for the full year ending in March, excluding costs associated with the ongoing redundancy programme. However, it warned that the “tax and regulatory backdrop increases costs and inflexibility for the company.” Royal Mail reiterated its call for government reforms to the universal service obligation, which currently requires it to deliver letters across the UK six days a week at a uniform price.
In last month’s Budget, Chancellor Rachel Reeves announced plans to raise around £20 billion a year by increasing employers’ National Insurance contributions from 13.8% to 15% from April. The threshold at which employers start paying the higher rate will also be reduced from £9,100 to £5,000, bringing more part-time workers into scope.
Despite the challenges, Martin Seidenberg, CEO of IDS, 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 delivered before peak, 16,000 additional people, extended delivery times until 8pm and our growing network of parcel lockers and parcel shops,” said he. .
Seidenberg emphasized the company’s commitment to controlling what it can do, but expressed concern about rising costs. “We are realizing the changes we can control, but the cost environment is deteriorating just when we need to invest. As a major employer with approximately 130,000 permanent employees, the changes to National Insurance will have a disproportionate impact on our business compared to the competition. This makes universal service reform even more urgent,” he added.