Peter Mandelson, Secretary of State for Trade and Industry, has decided to oppose a plan to sell 49 per cent of the Post Office. The idea has been considered during a government review of the business and could have raised pounds 2bn for the Treasury.
Mr Mandelson believes that such a sell-off would not help the Post Office to prosper in an increasingly competitive market at home and abroad, because it could not take place for another three years. He would need to push legislation through Parliament, and it is unlikely to win a slot in the Government's crowded agenda until the Queen's Speech in November 2000.
He believes such a delay would hinder the Post Office's attempts to safeguard its share of the British market and forge alliances with foreign companies.
City analysts have predicted there could eventually be only three or four big postal operations in Europe, and Mr Mandelson wants Britain's state- owned company to be a "big player", possibly by taking over foreign rivals.
In a fast-changing communications industry, the Post Office fears that foreign rivals will encroach on the British market. TNT, one of its main competitors, has been bought by the privatised Dutch post office, while the German postal authority has taken a minority stake in the DHL company.
"What the Post Office wants and needs is clarity and certainty," a government source said last night. "We have subjected it to delay and uncertainty for too long. It cannot afford another three-year wait; the pressures on it are too great."
Mr Mandelson, who will shortly receive his department's review report, believes that the organisation should be free to borrow more money than allowed under current Treasury rules. This would enable it to invest in its operations and expand.
In return, the public interest would be safeguarded by a strict regulatory regime. The Post Office would have to preserve its delivery service to every home, its uniform prices and maintain its nationwide network of sub-post offices.
A final decision on the review will be taken by the Cabinet. Although the Treasury has been keen on a partial privatisation, ministers believe that Mr Mandelson's call for a speedy resolution of the organisation's future will prevail.
While the Treasury would miss a one-off windfall, it would continue to receive part of the Post Office's profits. Last year, it handed over pounds 338m to the Exchequer and has contributed a total of pounds 2.1bn to government coffers since 1981.
Post Office bosses have complained that 90 per cent of the company's profits are soaked up by the Treasury. Under the Mandelson plan, they would surrender much less - retaining money for investment in automation, new services and expansion. They want to inject pounds 2.7bn into the business over the next five years.
The government source said: "We are not looking at this in a dogmatic way. We want to find the best way forward for the Post Office, so that it becomes a modern, enterprising and competitive organisation for the benefit of its customers and the country as a whole."
Mr Mandelson's conclusions will delight the unions, who feared that the leading New Labour architect would opt for privatisation when he was promoted to the Department of Trade and Industry in July.
Although postmen would have been given free shares worth pounds 2,000 each under one plan favoured by Geoffrey Robinson, the Paymaster General, the unions vehemently opposed a sell-off and warned that jobs and rural post offices would be at risk.
Derek Hodgson, general secretary of the Communication Workers Union, won a standing ovation at last month's Labour Party conference after criticising Mr Mandelson's handling of the issue.
The unions saw off a previous attempt to privatise the Post Office in 1992, when Michael Heseltine, then president of the board of trade, was forced to back down in the face of a Tory backbench revolt.
Many Labour MPs also oppose privatisation, and the prospect of a Commons rebellion when the legislation was brought forward may have been another factor in Mr Mandelson's mind.