Hated post office reforms have failed the public and threaten future of Royal Mail, says government report

It said the 168-year-old ' universal service' cannot continue unless radical changes are made at the crumbling company.

The report, from a team of experts commissioned by the Government, is the most serious alert yet about the service.

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Failing to deliver: The shake-up of the postal market has proved a 'serious threat' to the financial stability of the Royal Mail, the report warns

Since the Penny Black was introduced in 1840, everybody has been able to pay the same amount to post a letter, from the Cornish coast to the Scottish Highlands.

But the report says: "There is now a substantial threat to Royal Mail's financial stability and, therefore, the universal service.

"We have come to the conclusion that the status quo is not tenable."

The threat is largely blamed on the decision to open up Royal Mail to competition from January 2006.

For decades, it had used profits from business mail to subsidise "stamped" mail.

But competition has attacked Royal Mail's business more savagely than anticipated.

About one in five of the 83million letters sent every year is now handled by one of its 19 rivals, which include TNT, Deutsche Post and UK Mail. As a result, Royal Mail is now losing about 6p for every first or second class letter sent.

The 36-page report does not make any suggestions about how to solve the crisis at Royal Mail or how to preserve the universal service, which is enshrined in law.

It is only the three-man team's 'initial response' to the evidence it has received since the review was commissioned in December.

But Business Secretary John Hutton issued a powerfully worded statement, giving the strongest suggestion that "radical change" will take place at Royal Mail.

He said: "The findings are a wake-up call to anyone who believes it can be business as usual. It can't."

One option could be to pay other firms to deliver to remote parts of the UK to cut the huge cost to Royal Mail of delivering to every corner of the country.

The independent report pours scorn on the decision to open up Royal Mail to competition, which has fuelled so many of its current problems. It said liberalisation has resulted in "no significant benefits" for any domestic customers or small business users.

In fact, a number of deeply unpopular changes have been introduced over the last two years, it said.

The price of a first-class stamp has gone up from 30p to 36p.

A new pricing system which means that customers now have to consider the shape of a posted item as well as its weight has made life "more difficult".

For many, the most painful change to postal services is the Government's decision to axe 2,500 Post Offices.

Labour MP John McDonnell said: "This report confirms what we said from the beginning - that liberalisation would only benefit big business and do nothing for the public or the dedicated workers of Royal Mail.

"The Government must decide whose side it is on: is it on the side of the public and the workforce or on the side of big business?"

A Royal Mail spokesman said: "We welcome this report and Royal Mail absolutely agrees with the report's conclusion that the one-price-goes-anywhere universal service to the UK's 28million addresses is at the heart of a successful postal service."

Andy Frewin, of the postal watchdog, Postwatch, said: "We will fight tooth and nail to preserve the universal service."