On 29 July, the European Commission has opened an in-depth investigation to establish whether the Government plans to restructure Royal Mail comply with the EU state aid rules. The Government is planning to relieve Royal Mail of its 'pension deficit' and to strengthen its balance sheet by writing off around £1bn of Royal Mail’s £1.7bn debt. The Government believes that these measures are in line with the EU Guidelines on state aid for rescuing and restructuring firms in difficulty. However, the Commission is not so sure.

Joaquín Almunia, Commissioner responsible for competition, said that the Commission “must ensure that the state measures do not provide undue advantages to Royal Mail as this would distort the conditions of competition among postal operators in the Internal Market."

According to the Commission the UK has not convincingly demonstrated yet that the Royal Mail’s restructuring plan complies with the EU guidelines. The Commission, particularly, has doubts that the role of the Royal Mail “as the sole universal service provider and the liabilities resulting from its public sector monopoly legacy would justify mitigating the guidelines and notably the conditions ensuring that competition distortions are limited and that the cost of restructuring is shared by shareholders.” Furthermore, the Commission has expressed doubts about “whether the pension relief could be found compatible as compensation for an exceptional burden resulting from Royal Mail's past status as public sector monopoly.

As noted by Nikki Tait, from The Financial Times, “If the bail-out is judged to breach state aid rules, Royal Mail could be ordered to sell assets to offset the value of the support.”