Election '97 : Labour studies privatising Post Office

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Labour is examining plans put forward by the Post Office to privatise the organisation if it wins the election in a move which could raise pounds 2bn towards the "black hole" in the public finances.

Two options are understood to be under consideration. One is to sell 49 per cent of the Post Office, thus keeping it in public ownership, but at the same time give it commercial freedom to raise money on the financial markets and enter joint ventures with private sector partners.

The second more radical option is to sell a 51 per cent stake in the Post Office but retain a "golden share". This would enable Labour to ring fence monopoly services such as the Royal Mail and guarantee a universal service to every address in the country at a uniform price.

As a first step to privatisation, the Post Office could be reconstituted as a 100 per cent government-owned company. This change of status would free it from Treasury spending rules, giving it the freedom to fight growing competition from overseas post offices and private mail firms such as DHL, TNT and Federal Express.

Labour's deputy leader John Prescott, a strong advocate of partnerships between the private and public sector, has been briefed on the plans by John Roberts, chief executive of the Post Office. So too has Kim Howells, the member of Labour's trade and industry team with responsibility for the Post Office.

Both are said to favour "commercialisation" of the Post Office, including the introduction of private capital, although Mr Prescott may baulk at the sale of 51 per cent.

If Labour does sell part of the Post Office, it would mark a further significant step in its conversion to privatisation following confirmation that it will look at the sale of air traffic control. It would also mean that Labour had succeeded where Michael Heseltine failed. Mr Heseltine was prevented from privatising the Post Office in 1995 after a backbench Tory revolt.

One source said: "They are determined to deliver a solution to the Post Office's needs where Michael Heseltine failed."

Labour has confirmed it would consider the sale of Parcelforce, which has long been slated for privatisation. However, Post Office chiefs have cautioned it against piecemeal sales arguing that Parcelforce should be kept intact and sold along with Royal Mail and the Counters network.

The Post Office made a profit of pounds 422m in 1995-96 and in the current financial year is budgeted to contribute pounds 330m to government finances through its External Finance Limit. A 100 per cent sale could raise pounds 4bn.

But a more attractive solution might be to give it commercial freedom and then sell a half stake. This could raise pounds 2bn instantly but give Labour a continuing stream of income through the EFL.