Government review to unshackle Post Office

The Government yesterday ordered a wide-ranging review of the Post Office aimed at giving the organisation greater commercial freedom. However, full or part privatisation of the business, a process which could raise between pounds 2bn and pounds 4bn, has been ruled out by ministers on the grounds that it fails the public interest test.

A trade sale of the organisation's parcels division, Parcelforce, which had been aired by Labour before the election, appears to have been ditched. Ministers want to keep the three main businesses, Royal Mail, Post Office Counters and Parcelforce, as one entity.

The review could result in the Post Office being freed from the straitjacket of public sector borrowing controls, enabling it to form joint ventures with private- sector partners.

Announcing the review, Ian McCartney, the Industry Minister with responsibility for the Post Office, said all options for the organisation would be examined in consultation with senior Post Office management, unions, consumer groups and other interested parties including private mail firms.

Contrasting its lack of commercial freedom with that of the privatised Dutch post office, Mr McCartney said: "For too long now the Post Office, which is one of this country's major success stories and an essential part of its social and commercial infrastructure, has been held back from developing its full potential both domestically and in the increasingly globalised international market place. We now intend to remove the unnecessary and damaging shackles, whilst ensuring that competition between the Post Office and the private sector takes place on a fair and transparent basis."

However, in a move which appeared to run counter to the pledge of greater commercialisation, Mr McCartney announced that no further Crown post offices would be allowed to convert to agency status, where they are privately run by shopkeepers, until the review was complete. The number of Crown post offices has fallen from 1,500 10 years ago to just 600 now. The remainder of the 19,300-strong network are privately run sub post offices.

The Post Office nevertheless welcomed Mr McCartney's announcement, particularly the commitment to examine all options. "This opens the door to discussions about a whole range of things which were not available under the previous government because for them it was privatisation or nothing," said one Post executive.

One difficulty ministers may face is how to deliver on the promise of commercial freedom while the Post Office remains in public ownership. One option might be to convert it into a 100 per cent government-owned company which would free it from the Public Sector Borrowing Requirement. At present the Post Office pays virtually all its profits back to the Exchequer through corporation tax and its contribution to the External Finance Limit (EFL). This year its EFL contribution will be pounds 317m.

Before the election Post Office chiefs discussed two options for the privatisation of the organisation with senior Labour figures. One involved the sale of a 49 per cent stake, the other a 51 per cent sale but with the Government retaining a golden share. This would have allowed it to ring-fence services such as Royal Mail letter delivery, ensuring that the Post Office continued to provide a service to every address in the country at a uniform price.