Brown and Blair clash in Post sale

THE CABINET is split over privatisation of the Post Office as Gordon Brown lines up with Labour backbenchers to oppose Tony Blair's plans for a sell-off. The issue could prove to be the toughest test yet for the uneasy relationship between the Prime Minister and his Chancellor.

Despite claims to the contrary, senior Treasury sources yesterday insisted that Mr Brown was opposed to a partial privatisation of the organisation. That puts him on a collision course with No 10, which favours the move.

The Brown camp indicated yesterday that claims of conflict between the Chancellor and Margaret Beckett, the President of the Board of Trade were wrong and had been floated by supporters of Mr Blair seeking to capitalise on disagreements between the Chancellor and his allies.

It is understood that Mr Brown is seeking "greater commercial freedom" for the Post Office, but will resist attempts to seek buyers for a 49 per cent share. However, Downing Street still favours the sell-off which proved a privatisation too far for the Conservatives. Michael Heseltine was defeated on the issue in 1994 because Tory backbenchers refused to back him.

The issue raises strong emotions on all sides. While Mr Blair and his policy unit may see this as a chance to take on the unions, feelings are running high in the Commons. When Mr Brown spoke to Labour MPs last week, several voiced opposition even to partial privatisation.

"The postal service has been publicly owned since 1630. It's part of the social fabric of this country. To sell it off would look completely hypocritical after Labour campaigned against it in 1994," one MP said.

Talks between the Post Office, the Treasury and the Department of Trade and Industry are under way as part of a review whose results are due to be announced in the autumn. However, senior Post Office managers have registered their frustration over the Government's continuing indecision.

Under one possible option, the state-owned company would be able to borrow from the private capital markets. Unions argued that the Treasury could gain up to pounds 2bn in revenues before the next election if it gave the Post Office this freedom.

Because the accounting system governing state borrowing has been changed, loans to the Post Office for capital investment will no longer be part of what used to be called the public-sector borrowing requirement. It had been thought that the Treasury might oppose commercial freedom because it would place a burden on the PSBR.

Meanwhile, leaders of the Communication Workers Union declared their surprise at weekend reports that the Chancellor was seeking a share sale. It is understood that Derek Hodgson, general-secretary of the union, came away from a recent private meeting with Mr Brown under the impression that the option had been dropped. The union was subsequently told by sources at the DTI that the Treasury was insisting on partial privatisation.

Mr Hodgson has now written to the Chancellor asking for confirmation that the Post Office will remain under 100 per cent state ownership.

"I don't believe they can be serious about this. It did not appear in the manifesto, it would backtrack on pre-election promises and there are no logical reasons for doing it," Mr Hodgson said.

Privately, the union is angry about the possibility of a sale and would even contemplate industrial action to stop it.

Friends of Mr Brown have denied claims that the Chancellor was involved in a bitter battle on the issue with Mrs Beckett, who is opposed to partial privatisation. Their close political friendship has also come under strain over the issue of the national minimum wage. Mrs Beckett wanted to implement all the Low Pay Commission's recommendations but Mr Brown insisted on a lower rate for more young people.

There has been increasing speculation that Mr Brown has been garnering support throughout the Labour Party in pursuit of a long-term plan to supplant the Prime Minister.