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EU Investigates British State Aid to Royal Mail

The European Commission ordered an investigation, Thursday, into whether the ?2.6 billion of government funding for the national postal service, Royal Mail, is illegal state aid, as well as, whether the British government provided the company with loans at comfortable rates. The commission stated that the investigation, which includes the ?300 billion government loan, announced February 8, was brought on by complaints from Royal Mail`s competitors, who claimed the company, which is state owned, was receiving unfair government subsidies. Royal Mail lost its 350-year-old mail service monopoly at the end of 2005, with the opening of the British postal market to competition.

Neelie Kroes, EU competition commissioner, said: "I take the complaints received very seriously. The postal sector is increasingly open to competition and it is important to reassure competitors that the advantages of that opening are not neutralized by illegal state subsidies...The commission will also make sure that any necessary financing intended to compensate the provision of the public service is not called into question."

EU member governments are allowed to give companies providing a public service whatever they require in order for them to continue to provide that service, but are not allowed to provide government loans at better rates than they would receive in the private sector. If the investigation team finds that Royal Mail received capitol in form of a loan at reduced rates, it may be required to return the difference to the government. According to its annual report for the year ended 26 March 2006, Royal Mail delivers 84 million items every working day and has a network of 14,376 post offices. Revenue for the year was ?9.056 billion, and profits before tax were ?312 million.