Things can only get worse…

Mixed news for the UK economy
BT slashes 10,000 jobs
£1bn contract will save 3,000 post offices from closure

With BT the Guardian reports:

BT is axing 10,000 workers, or 6% of its global workforce, with several thousand expected to go in the UK as the company looks to cut costs and reduce its reliance on contractors in the face of the global economic downturn.

The company, which announced an 11% fall in second quarter profits, said it has already cut 4,000 mostly contractors jobs and a further 6,000 will go by next April. The majority of those job losses will be among BT’s own staff and the axe is expected to fall particularly heavily in the UK.

BT has 160,000 people working for it worldwide, of whom 110,000 are directly employed.

This latest blow to the British economy came just a day after the number of jobless people in the UK hit its highest level since 1997. By the end of September there were 1.825 million people out of work. The claimaint count also rose to 980,900, its highest level since the end of 1997.

News of the job cuts helped to sent the company’s shares up 12% in early trading, 13.5p higher at 126p.

The job losses are not, the company stressed, related to the poor performance of its BT Global Services unit, which has failed to hit profitability targets and caused the company to warn last month that profits before financial charges will be down this year. That warning sent shares in the company to their lowest level since it was privatised. Turning around BT Global Services is expected to lead to thousands more job losses.

BT stressed that thousands of its staff leave every year, so most of the reduction will happen by the company not replacing leavers. But unions are increasingly concerned about the number of UK companies cutting staff, with Virgin Media saying earlier this week that it is eliminating 2,200 positions and Taylor Wimpey cutting another 1,000 posts.

BT’s chief executive, Ian Livingston, who took over from Ben Verwaayen just four months ago, today admitted: “Three out of our four business units, BT Retail, BT Wholesale and Openreach are delivering on or ahead of target. But profits in BT Global Services are simply not good enough and we are taking decisive action to put matters right. What we have to do now is translate revenue growth into better profitability.”

In the three months to the end of September, BT made revenues of £5.3bn, up 4%, but pretax profits slumped 11% to £590m. For the six months to the end of September, revenues were up 3% at just under £10.5bn with profits down 9% at £1.2bn.

Earnings before financial charges for the quarter were down 1% at £1.43bn. Two weeks ago BT admitted revenues would be ahead of original forecasts but profits would be slightly below and today’s results were actually slightly better than the City’s revised forecasts.

In the three months to the end of September BT said its retail business added just 69,000 new broadband customers, less than half the 164,000 added in the same period by BSkyB – taking it to 4.6 million customers. The company admitted that the market is becoming more “mature”.

The company also confirmed that it is looking at ways of easing the pressure on its pension scheme, the largest private sector fund in the UK, by introducing changes such as raising the retirement age.

“We are in a period of comprehensive consultation with our UK employees. The aim of this review is to provide long term sustainability, flexibility and fairness,” the company said.

As for the Post Offices:

Ministers are expected to give a reprieve today to 3,000 post offices threatened by closure when the government announces that the Post Office can retain its £1bn five- year contract to distribute benefits to 4.3 million claimants.

The announcement, a fortnight earlier than expected, will delight Labour backbenchers who had thought the government was gearing up to hand the contract to the private company PayPoint.

Unions had warned that this would lead to 3,000 post offices being closed, only a year after the closure of 2,500 had begun.

The government has been under massive political pressure over the contract: 2 million people signed a petition and 265 MPs from all parties signed a parliamentary motion calling for it to stay with the Post Office.

The tender went out in May last year and a decision had been delayed since the beginning of this year, casting a serious shadow over the future of the Post Office network. Earlier this week the all-party business and enterprise select committee reported that government indecision over the account had “destabilised” the Post Office, and the Liberal Democrats staged a Commons debate warning that the uncertainty was leaving the Post Office in a parlous state.

The post office card account (Poca) makes £200m profit a year. Of the 4.3 million people who use Poca, 2.3 million are pensioners.

Critics of the Department for Work and Pensions have warned that the private company PayPoint does not properly service rural areas, unlike the Post Office, since it only has a network of about 20,000 terminals, mostly in newsagents and supermarkets.

Labour MPs claim the DWP has been putting pressure on pensioners to use bank accounts instead of their local post office. The issue of post office closures took centre stage in last week’s Glenrothes byelection, with opposition parties opposing the government’s plans. The Conservatives had come out in favour of expanding the Poca to allow poorer customers to use it to pay utility bills.

Ministers have been making emollient noises in recent days. A letter leaked to the Guardian showed that the new business secretary, Lord Mandelson, had written to the prime minister proposing a review that might see the Post Office’s role expanded into “financial services”.

The decision to close 2,500 of the country’s 14,000 post offices last year was enormously unpopular, with several members of the cabinet that voted the measure through – Jack Straw, Hazel Blears and Tessa Jowell – campaigning against post office closures in their constituencies. That round of closures had been to reduce the £4m-a-week subsidy the government was providing to the service.

Ministers now appear to have decided that the economic downturn strengthens the case for post offices. They are also keen to improve relations with their backbenches.

In its report, the business and enterprise committee stopped short of telling the DWP that it should choose the Post Office over rival bids, but warned that if its tender was unsuccessful, the decision “would have grave effects on the Post Office network”.

The MPs warned that if the Post Office lost the contract, taxpayers could end up paying higher subsidies to maintain the network while at the same time supporting the commercial providers of the DWP card account.

The previous Poca contract, by which the Post Office is paid by the DWP according to the number of people who open and use the account, is due to expire in early 2010.

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