Leading Article: Not a bold decision, but the right one for the Post Office

PETER MANDELSON, the Secretary of State for Trade and Industry, has made few difficult decisions since his elevation to the Cabinet. Yesterday proved to be his first real test, tackling a Post Office crying out for change.

The Post Office has been losing domestic business to competitors from mainland Europe; the service's reliability is under strain and could do with a burst of new investment. Yet The Post Office has been shackled to an unresponsive Government. The profits The Post Office makes have to be given to the Treasury; it has not been allowed to borrow, since the amounts raised have to be set against the Treasury's overall borrowing requirement.

No one wants to see the chaos of the privatised railways, a standing reproach to those who would rush into privatising services that people rely on and care about, replicated in our postal services. A total free for all may also endanger the objective of one postal cost for letters sent anywhere in the country, without which rural Britain would be left with a sub-standard service.

Nor is total and immediate privatisation political reality. The sight of the red post-boxes and the monarch's head on the stamps are enormously comforting, one remaining symbol of national identity in everyday life. Public suspicion that the Tories were about to meddle with The Post Office made a significant contribution to their electoral collapse. But The Post Office will have to be flexible to survive in a booming and cut- throat market. Permitting borrowing, and allowing it to give up a smaller slice of profit to the exchequer, will grant just that flexibility.

In the long run, its monopoly may have to disappear. Why should the state carrier be permitted to borrow at the low rates its privileged position allows, leaving other operators to struggle in its wake? The Government has recognised this by lowering the posting cost at which the monopoly on domestic carriage begins. It has also made a gesture towards fairness for other postal companies in revoking The Post Office's immunity from VAT on parcels.

It seems likely that there will be a phased reduction in that monopoly position; yesterday the removal of The Post Office's exclusive hold on direct mail was brought forward. If the monopoly does not hold, future governments will have to subsidise deliveries, so that postal costs to the far reaches of the country do not rise prohibitively.

All that is for the future. For now, Mr Mandelson seems to have managed the transition to managed competition with some skill. There was no point in forcing a confrontation with the postal unions, and there is no hurry in leaping into a brave but untested world of unmanaged competition. The Post Office has sensibly been established on the same basis as its competitors, as management wished. Now it is for them to show that they can compete.