The UK's incumbent postal operator Royal Mail has received a reported GBP1.75 billion cash injection from the government to help it meet its pensions obligations.

Some of the cash is also likely to be used to help fund modernization of the postal operator’s sorting offices and IT systems. However the announcement of the deal – which the BBC reports is worth some GBP1.75 billion in total – has sparked controversy, given that Royal Mail simultaneously announced profits of GBP355 million for the last financial year.

The government – which still owns Royal Mail – insists that the bulk of the money is in the form of a commercial loan that the government will expect to be repaid by 2013. The remainder is made up from reserves that Royal Mail was previously not allowed to touch. Under these conditions, the money is unlikely to fall foul of EU rules on state subsidy.