Outlook: Post Office

MUCH AS Peter Mandelson, Secretary of State for Trade and Industry, tried to dress up his policy for the Post Office yesterday as the right way forward for this bastion of state-administered monopoly and restrictive practice, the decision not to privatise has more to do with realpolitik than rigorous commercial assessment.

Privatisation would have required primary legislation, and even if the Government was able to find time for this in between erecting the Financial Services Authority and dismantling the House of Lords, it is not certain it would have the stomach for it . Even the mighty Hezza, fresh from closing down and privatising the coal industry, was unable to get that one through his back benchers.

Mr Mandelson has enough problems with the trade unions as it is, what with trying to water down the rules on union recognition; he wouldn't want to take them on over the Post Office as well.

Mr Mandelson seems to have won his battle with the Treasury on another front, too. He has persuaded the Exchequer to reduce the amount of profit taken by way of dividend each year from 80 per cent of the total to 40 per cent. This is still high by private sector standards, but for the investment-starved Post Office, it is a lot better than nothing.

The danger is that 130,000 posties will see this largess as an early Christmas present and further raise their wage claims. You can pretend the Post Office is in the private sector as much as you like; the establishment of an independent regulator, plus new freedoms for the Post Office to borrow and acquire (subject to government approval, of course), is powerfully suggestive of the real thing. But in the end, make-believe just isn't the same.

All the same, Mr Mandelson is right in thinking the Post Office would wither and die unless something changes. Even without the promised "phased liberalisation" of the monopoly postal area, the Post Office's position is likely to be progressively eroded by e-mail and other forms of postal service.

The Post Office is going to prove an interesting test of whether an organisation subject to competitive pressures can be as effectively managed from the public as the private sector. The belief that it can is certainly a triumph of hope over experience, but then again, stranger things have been known.