Leading Article: Last post for the Royal Mail

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BRITAIN has one of Europe's most reliable and profitable Post Offices, and one which justifies its broad public popularity. This, as much as the presence of the Queen's head on British stamps, gave Baroness Thatcher a reason to hesitate before taking it out of the public sector. At first sight, therefore, John Major's government is taking an unexpected political risk in embarking on its privatisation.

Yet the pre-election tax cut which the pounds 2bn proceeds of a sale might make possible is only the smallest of the potential prizes. For all the improvements it has made over the past decade, the Post Office could give consumers a sharply better service for the same price. In the private sector, it could offer a wider range of counter services and use better technology in delivering letters.

Yet there are undoubtedly political concerns which must be addressed if the privatisation is to be successful. First, there is a real risk that even with the Post Office's counters business left in public hands, a privatised Royal Mail might drive some of the country's 19,000 rural post offices from their present precarious existence into extinction.

There is clearly a social case for safeguarding the future of unprofitable country post offices which provide a focus for the communities they serve. But this future can be better achieved by a transparent subsidy than by burying its cost in the accounts of the Royal Mail. Public debate, not Whitehall guesswork, will best establish how large that subsidy should be.

The preservation of the Post Office's national tariff is a more difficult proposition. It is tempting to ask why, if local telephone calls are cheaper than those over a long distance, those who send letters across a single city should subsidise those who send them hundreds of miles across the country. If the Royal Mail is to be forced to preserve the single national tariff, though, its managers are certain to demand protection from competitors who could undercut it in London and other large cities.

Finding a suitable balance between encouraging competition and preserving a universal service will be a subtle matter. The experience gained in regulating British Telecom should provide some clues to achieving it. Since the DTI's review has taken 22 months, and the preparation of legislation may take until the end of the year, the Government still has plenty of time.

But the Cabinet should be in no doubt, as it meets this morning, of what is at risk if it shirks these challenges. The profitability of the Royal Mail's core business will face growing pressure from fax machines and private couriers. If the entire organisation stays in the public sector, its management will have little incentive to make the necessary cost cuts, and it will continue to suffer from chronic underinvestment. Far from justifying the status quo, the Royal Mail's current success is the most convincing reason for privatising it before it is cherry-picked to death.