Royal Mail has lost an important contract

The contract - worth �12m - will now be given to private firm UK Mail, after a year's trial involving it and TNT Post.

The deal means UK Mail will collect and sort pension forms and other letters from two centres in the north of England before Royal Mail delivery.

This latest deal comes after UK Mail won a similar contract with the Royal Bank of Scotland.

'Very significant'

Guy Buswell of Business Post, the parent firm of UK Mail, said the company was delighted after winning "this very significant contract".

"It being the first such contract awarded by central government, it was a highly competitive process and follows a year long-trial period during which we operated alongside other independent operator," he added.

The UK Department for Work and Pensions is one of the largest mailers in the UK, alongside HM Revenue and Customs.

It is the first government department to ditch the Royal Mail, and others could now follow.