Last night's decision, which is expected to be ratified by the full council next week, paves the way for a share offering later this year that could raise up to pounds 500m. The council, which was reluctant to sell the company off, will retain control of Kingston through a golden share and will keep a substantial stake in the group.
Patrick Doyle, the Labour leader of the council, said the golden share would be used to keep the company's headquarters in Hull and added that he expected the local authority to remain "by far and away the single largest shareholder".
He said that the Labour group, advised by the investment bank Deutsche Morgan Grenfell, had chosen a stock listing ahead of a trade sale as the most efficient way to support the company's "aggressive business development strategy". Mr Doyle said the council would float at least 25 per cent of Kingston and use the proceeds to fund the company's expansion outside its local area.
Kingston recently lost its monopoly of telephone services in Hull, but it is still the largest telecoms provider among the City's 267,000 inhabitants. It also owns Torch Telecommunications, a fast-growing company that uses fibre-optic networks to provide business telecoms services in Yorkshire and the North-east.
The Labour group is set to urge the council to introduce a series of measures to encourage Kingston's local subscribers to buy shares in the group. It is likely that small investors will be given the chance to pay in installments for their stock and to receive a discount on their bills together with their shares.
Last night's decision to float Kingston came after pressure from the Department of the Environment, Transport and the Regions, which had told the council that it would not renew a special exemption allowing it to own a telecoms company.