DTI sets up review of Royal Mail's future in the free market

Alan Johnson, the Secretary of state for Trade and Industry, is to appoint a special committee to review Royal Mail's future.

Alan Johnson, the Secretary of state for Trade and Industry, is to appoint a special committee to review Royal Mail's future.

Mr Johnson is considering potential candidates to chair the committee, and an official announcement is expected within a fortnight.

The committee would consider the impact of competition, Royal Mail's plans to improve profitability and the future of the Post Office network, a well-placed source said.

The review, promised in the Labour manifesto, is a prelude to the postal market being fully opened to competition in 2006.

Royal Mail has argued that it needs to invest £2bn in its business to compete effectively against the competition, which is expected to come from Deutsche Post and TPG, the Dutch operator.

The committee is expected to examine the impact of the draft decision earlier this month by Postcomm, the regulator, to cap rises in stamp prices by 4p over the next five years. Royal Mail's chairman, Allan Leighton, has said that this would "starve Royal Mail of vital investment" and "wreck the quality of service". Mr Johnson is understood to have raised questions privately over Postcomm's ruling.

The committee is also expected to examine Mr Leighton's proposals to hand 51 per cent of the company to the postal workers in a model based on the John Lewis Partnership.

Mr Leighton plans to borrow £2bn to buy the shares, but he wants the Government to take £1.5bn of Royal Mail's £2.5bn-worth of pension liabilities.

The plans are fiercely opposed by the Communication Workers Union, which believes that the share sale would be a form of privatisation.

Mr Johnson, who met Mr Leighton last week, will spend the weekend considering the share-sale idea. The Labour manifesto is committed to keeping Royal Mail in public ownership, and Mr Johnson must decide whether Mr Leighton's plans would break that promise.