Peter Mandelson, Secretary of State for Trade and Industry, said that customers would get a better service following his decision to create a "Post Office plc" which will remain in the public sector but with much greater commercial freedom than at present.
The proposals include a removal of the Post Office's monopoly on delivering letters costing up to pounds 1 to send. But, as The Independent revealed in October, Mr Mandelson ruled out an immediate privatisation of the organisation, even though the sale of 49 per cent of the Government's shareholding was favoured by the Treasury and could raise pounds 2bn.
Although he told the Commons that a shares sale would be kept under review, ministers have shelved the idea until after the next general election.
Mr Mandelson said privatisation would pose a threat to the survival of sub-post offices and create "massive uncertainty" until legislation could be introduced. Ministers also had little stomach for a three- year guerrilla war with the Post Office unions, who are vehemently opposed to privatisation.
Mr Mandelson is locked in negotiations with both sides of industry over legislation on new rights in the workplace and does not want to fight the unions on two fronts. He told MPs the Post Office would become a "new form of public sector enterprise operating at arm's-length from the Government".
A new independent regulator would protect consumer interests by maintaining the present universal delivery service at the same price.
The Post Office's monopoly on letters costing up to pounds 1 is expected to be reduced to letters costing up to about 50p.
In return, the Post Office will be allowed to compete in a highly competitive market by investing an extra pounds 1bn over five years in new products and technology and to forge partnerships with other postal operators.
Although the Treasury will continue to cream off some of its profits, the payments will be reduced from an estimated pounds 335m next year to pounds 207m. In future, the Government will take about 40 per cent of its profits, instead of the 80 per cent in recent years.
Ministers hope the shake-up will improve the efficiency of the Post Office, which will be allowed to pay its workers more provided that productivity improvements are made.
The Government will lift a moratorium on closing Crown post offices, usually based in town centres, and reopening them in retail outlets such as out-of-town superstores, which could net the Post Office millions of pounds.
Neville Bain, the Post Office chairman, said the Government's decision could lead to lower postal prices in the future and had safeguarded the nationwide network of post offices.
But John Redwood, the Tory spokesman for trade and industry, warned that Mr Mandelson's statement would leave the company with "the worst of all worlds".
He accused the minister of "caving in" to the union opposition to privatisation, and said the Post Office would still have "two hands tied behind its back" because the Government would still be allowed to interfere in its operations.
Derek Hodgson, general secretary of the Communications Workers Union, said he was "extremely pleased" the service would remain in the public sector. "We are pleased that Mr Mandelson has listened to the representations we have been making," he said.
He vowed to persuade ministers to rule out privatisation for all time.Reuse content