Postcomm wants Royal Mail part-privatised

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Saturday deliveries could be threatened unless the Royal Mail is partly privatised, the postal regulator has warned.

A 100-page report by Postcomm to an independent inquiry into the future of the Post Office warns that a fresh injection of cash is needed to protect the postal service from deterioration.

It implies that other services could be put at risk if part-privatisation is not endorsed by the Government. The Postcomm report says that scrapping Saturday deliveries could save £270m a year.

The Post Office made a loss of £279m in the year to the end of March. "Royal Mail needs access to private capital and a stronger set of incentives to enable it to restructure and become more profitable," Postcomm said.

The review was set up by the Government but the Postcomm report will come as a fresh blow to the Prime Minister, Gordon Brown, who is already facing a backbench backlash over the closure of post offices. It could lead to Royal Mail being partly owned by a private equity firm. But Labour MPs fear that privatisation would put more of the network of post offices at risk as the new partners searched for great-er savings and Mr Brown would almost certainly face a full-scale revolt if he endorses the proposal.

Nigel Stapleton, Postcomm's chairman, said that without private sector involvement, Royal Mail may require a government subsidy. Private sector partnerships had worked in other European countries, he said. "Postcomm wants to see the Government and Royal Mail embrace a partnership approach with the private sector to secure a universal service," Mr Stapleton said.

Privatisation in any form would be likely to be opposed by the Communication Workers Union, the main postal workers' union.

The 350-year monopoly of Royal Mail ended at the start of 2006, when other licensed operators were given the right to collect and deliver mail. But it is still obliged to deliver letters to and from anywhere in the UK at a uniform tariff.

Royal Mail lost business in the lucrative bulk mail collection and sorting market, but still must uphold less profitable universal delivery. Postcomm said more competition was needed to ensure a high-quality service. To encourage new operators, it called for Royal Mail's exemption from VAT to be scrapped.

The Post Office lost £10m in the year to March, the last year before liberalisation of the market led to a sharp increase in its losses.