Royal Mail 'must be privatised' to stop it haemorrhaging money, says post office regulator

In a politically explosive move, Postcomm will insist there is no option but to let private firms buy a stake in the Government-owned business.

It raises the hugely controversial prospect of companies – including foreign firms – buying a stake of up to 49 per cent in Royal Mail.

If Labour acts on the suggestion, it could lead to Gordon Brown carrying out a privatisation that even Margaret Thatcher did not dare to do.

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The proposal, contained in Postcomm's submission to the Government's independent review into postal services, would be fiercely opposed at every step by the unions.

Labour promised in 2004 that it "had no plans" to privatise the business.

But Postcomm believes "bold action" must be taken "very quickly" if Royal Mail is going to be able to continue its "universal" service.

This makes it possible to send a letter any distance for the same price.

Postcomm will say that part privatisation is the only realistic way to protect the service.

It gives the example of the Danish and Swedish postal services, which are jointly owned by the state, postal workers and a private equity firm, CVC Capital Partners.

Without private money being poured into Royal Mail, Postcomm says its current business is "unsustainable".

Nigel Stapleton, Postcomm's chairman, compares the firm to "a person climbing up a very steep hill with a rucksack on his back filled with rocks".

Under the plan, the country's 11,500 post offices would be separated from their parent company, Royal Mail.

The loss-making but hugely important Post Office network must remain under Government control, Postcomm says.

Royal Mail's pension fund deficit of nearly £3billion would also be taken on by the Government.

This is because no private business would want to buy a stake in the Royal Mail with such an enormous pension black hole on its books.

But much of the rest of Royal Mail's business – including daily postal deliveries – would be sold off to private firms.

In a further move, it wants to make it easier for other firms to deliver letters to Britain's 28million addresses.

In theory, the so-called "final mile" was opened up to competition from January 1, 2006 – but no company has bothered because it is so expensive.

Postcomm wants to change the tax advantage that Royal Mail enjoys to give rivals a better chance.

At present, Royal Mail is exempt from VAT, but its competitors are not. There is no doubt that the universal service also desperately needs help.

Royal Mail admitted recently that this part of its business is losing money for the first time since records began. It lost around £100million last year.

Without changes, chief executive Adam Crozier said the service, which he described as "part of the fabric of our society", will struggle to survive.

A recent report commissioned by the Government found the universal service is under "substantial threat" and the "status quo is not tenable".

Other more controversial proposals had been made by the consultants Frontier Economics, hired by Postcomm to look at the cost of providing the universal service.

It suggested cutting Saturday deliveries and lowering the percentage of first-class letters which must arrive overnight – currently 93 per cent.

But Postcomm rejected both these ideas.

The regulator's submission is part of a review into postal services, commissioned by the Department for Business, Enterprise and Regulatory Reform in December.

Town halls may save 500 post offices

One in five of the post offices threatened with closure were offered the chance of rescue yesterday by their local town halls.

Chiefs of 100 local authorities were drawing up plans to pump £150million of council taxpayers' money into some of the branches facing the axe.

The scheme, which could save 500 of the 2,500 post offices scheduled to close, emerged after a conference of council chiefs highlighted the importance of local post offices to rural villages and city suburbs.

Among authorities examining the details of buying up post offices were Essex, Blackpool, Telford and Wrekin, and Edinburgh.

Lord Hanningfield, Tory leader of Essex, was said to be "close to making an announcement" about keeping open 15 of the county's 31 post offices due for closure.

Sir Simon Milton, head of the Local Government Association that acts as an umbrella for councils, said: "The post office is the lifeblood of the High Street. Councils have long battled against the closure of post offices."

He called for managers of the Post Office to give more details of local business to councils and warned: "Without specific information it is impossible for local people to know whether any proposed closure will be damaging for the local economy."

Officials insisted that the takeover scheme would not mean losses were simply switched from Treasury to council taxpayers.

Gordon Lishman of Age Concern said: "We would warmly welcome councils looking into the feasibility of providing post office services.

"Our research shows how much of a lifeline older people consider their local post office to be, acting as a one-stop shop to access their pension and benefits, pay bills, get advice and socialise."