The Royal Mail is about to deliver Gordon Brown a serious headache. The Business Secretary, Lord Mandelson, will introduce legislation tomorrow which seeks to put just under a third of the public postal service up for sale. More than 120 Labour backbenchers are threatening to defy the whip and vote against the bill. If a revolt on this scale materialises, the Government would be forced to rely on opposition votes.

Do the rebels have a case? On the face of it, there is something strange about the Government slowly nationalising certain private banks while at the same time attempting to part- privatise the Royal Mail. But the circumstances are actually very different. The banks are teetering on the brink of collapse because they remain in the private sector. But the Royal Mail could go under if it remains a state-run quasi-monopoly.

The ills of the Royal Mail have been perfectly apparent for many years now. Despite the fact that the service now turns a profit, it remains chronically inefficient, hobbled by the restrictive practices and militancy of its workforce. It is also seeing its share of the delivery market squeezed.

In fairness, this is not entirely the fault of the management or its staff. The Government's decision to allow private sector companies to compete in the business mail market in 2006 put it at a considerable disadvantage. The Royal Mail lost some of its most profitable work, while retaining its costly statutory obligation to deliver a letter to the furthest outpost of the British Isles for the price of a single stamp.

The Royal Mail has also been hit hard by the internet-driven revolution in communications. Fewer personal letters are being sent thanks to the rise of email. The Royal Mail chief executive, Adam Crozier, told the parliamentary Business Select Committee yesterday that he expects an 8 per cent drop in volume next year. Even the most brilliant management would struggle in the face of such a shift in the public's behaviour.

The revelation of the Royal Mail's yawning pension scheme deficit this week was doubtless a ploy by the Government to prepare the ground for this legislation. But the point made by the leak is a powerful one: the Royal Mail is not generating enough cash to cover its existing liabilities, let alone any investment in new cost-saving technologies. As the Hooper review into the future of the service recommended last December, what the Royal Mail needs is an injection of private sector capital and management expertise.

We should not delude ourselves that this alone is the solution. The lamentable performance of the franchised rail services since the break up of British Rail in the early 1990s shows that privatisation is no panacea for struggling public services. What the Royal Mail needs just as pressingly is competent management and strong leadership. And some form of government subsidy will be needed for the foreseeable future to preserve the "universal service obligation". There are some social services that the free market simply will not provide.

Yet these rebellious Labour MPs – and those postal workers who demonstrated against the legislation in Westminster yesterday – are deluding themselves if they imagine that the Royal Mail can survive indefinitely without serious restructuring. What these opponents of reform need is an urgent delivery of reality.