Royal Mail: a more efficient service is needed to finance bigger pay

With ballots issued to 115,000 Royal Mail workers, this could become the biggest strike of the summer. Royal Mail only offers to pay an extra 2 per cent rise, with an additional 3.5 per cent dependent on efficiency gains. These trade on six times forward earnings, less than half their long-term average and that of more automated continental peers such as Post NL. Royal Mail's operating profit margin, which should fall by a quarter this year to 4.4 per cent, is also well below its peers. Its pay bill, last year totalling £5.5bn, accounts for more than two-thirds of that. Given flat revenues and difficulty passing extra costs to customers, Royal Mail needs productivity gains to finance pay rises.

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