Heseltine gambles on mail U-turn

Michael Heseltine put a last-ditch compromise to leading Tory backbench rebels last night in an attempt to enable privatisation of the Royal Mail to go ahead.

The President of the Board of Trade's reputation will be resting on a tactical retreat over his plans for the sale of 51 per cent of the Royal Mail, which will be presented today to a Cabinet committee.

Under the compromise plan, the Government would sell shares in the Royal Mail, but it would be a minority stake, and the balance would be kept in a trust. Cabinet sources said last night that the Government could sell 40 per cent, 40 per cent would be retained in public ownership, and the remaining 20 per cent would be held in trust. The trust shareholding could be held jointly by workers and sub-postmasters and postmistresses.

The ingenious trust formula, disclosed in later editions of the Independent yesterday, was offered by Mr Heseltine in private meetings with some of the 12 Tory MPs who had signed a Commons motion attacking the privatisation of the Post Office. His U-turn was an attempt to buy off the threat of a government defeat, but some of the rebels were still holding out. Ministers were also braced for a full-scale attack by Labour and trade unions, who are to mount a renewed campaign against semi-privatisation. They will campaign for the Royal Mail to be wholly retained in the public sector, but with commercial freedom to raise investment in the City.

Tony Blair, the Labour leader, put John Major on the defensive over the sale in Prime Minister's Questions yesterday. But the partial sale could present Mr Blair with a problem at the next election over his pledge to retain it in public ownership. If shares are sold, Labour will have to devise a formula for buying back a controlling stake.

Alan Johnson, general secretary of the Union of Communication Workers, announced that a petition in favour of a Post Office wholly in the public sector with a greater degree of commercial freedom had now attracted 1,750,000 signatures. The UCW claims that it is ``easily'' the largest petition ever collected in Britain.

Mr Heseltine saw the potential rebels, one by one, in his room at the Commons. ``He has given up the idea of selling 51 per cent of the Royal Mail. That is the most important thing. It's a pity he went out on a limb from the outset,'' said one Tory MP after his meeting.

The compromise will meet the Treasury's insistence that the Royal Mail should be released from public sector control. It would be no longer counted as part of the Public Sector Borrowing Requirement, and the flotation will raise around pounds 1bn. It will also avoid the Government being challenged by the European Commission for breaching anti-competition rules.

By putting the balance of the shares in trust for the employees and the sub-post offices, the Government will seek to allay the fears that rural services will be cut or closed.

The Tory rebels warned the Government that they were responding to widespread alarm among their constituents at the plans to sell off the Royal Mail. Repeated assurances about protection of rural post offices, a national flat-rate postal charge and retaining the Queen's head on postage stamps failed to kill the fears that rural sub-post offices would be closed.

The search for a compromise was forced on Mr Heseltine by the whips, who warned that the Government, with its majority down to 14, could face defeat if it went on with a privatisation Bill.

Mr Heseltine succeeded in winning over doubters in the Cabinet, including Douglas Hurd, to the principle of privatisation, but the Cabinet committee on industry twice delayed a decision last week, to enable Mr Heseltine to see the rebels. The Tory MPs reported back to colleagues after their meetings with Mr Heseltine that they had won their battle. The deal is likely to be endorsed by a full meeting of the Cabinet tomorrow, followed by a Bill in the next Queen's Speech on 16 November.

The Treasury has been pushing hard for the sale of a majority stake in Royal Mail. Kenneth Clarke, the Chancellor, was one of the leading Cabinet voices in favour.

The rebels, page 8

Angela Lambert, page 17