Sell-off could cripple Royal Mail profits

POSTAL privatisation risks putting Parcelforce out of business and crippling the Royal Mail's profitability, according to a confidential report.

The document, written by a top Post Office executive, says that the Government can only avoid these risks by limiting competition, which might be in breach of European law.

A Cabinet sub-committee is likely to decide the fate of the Royal Mail tomorrow. Backbench unease about the sell-off, which was proposed by Michael Heseltine, President of the Board of Trade, is growing.

The Royal Mail has backed Mr Heseltine's proposals. But a document marked 'in strictest confidence', written by the Post Office's director of corporate planning, Richard Adams, admits major complications.

Mr Heseltine's preferred option is to sell 51 per cent of Royal Mail and Parcelforce. The present Counters division - responsible for high street post offices - would stay in the public sector.

Mr Adams fears that exclusive Royal Mail and Parcelforce access to the Post Office counters network could not be maintained under articles 85 and 86 of the Treaty of Rome. The counters would have to be opened up, allowing high street post offices to employ couriers to deliver mail or parcels.

The report argues:'The threat is so serious as to call into question the future viability of the business as a separate entity.

'The commercial threat to Royal Mail is very substantial. It is clear that the threats to the very existence of Parcelforce, and to Royal Mail's margins in a price-capped environment, make exclusive access to Counters a key strategic issue'.

Parcelforce could lose pounds 90m with Royal Mail potential losses amounting to pounds 162.5m.

Government business managers are increasingly worried about getting the sell-off through the Commons. Eight Tory MPs have signed a critical early day motion and five others have made public criticisms. The Ulster Unionists are also opposed.