Tory rebels thwart Royal Mail sell-off

Michael Heseltine's plans to privatise the Post Office were doomed last night after he failed to win the support of about a dozen Tory backbench rebels for an 11th-hour compromise proposal.

Today, in a humiliating climb-down which could do lasting damage to his reputation, the President of the Board of Trade will present John Major and the Cabinet with little option but to abandon his plan sell off 51 per cent of the Royal Mail, and allow the Post Office to remain in public ownership with new commercial freedom.

Jettisoning privatisation of the Post Office will be seen as a signal that John Major wants consolidation to be the hallmark of the package of legislation for the Queen's Speech on 16 November, which the Cabinet will agree today, to rebuild the Government's popularity over the next 12 months.

Mr Heseltine met the rebels after the Cabinet committee on industry gave him time for a last-minute appeal yesterday.

First, he ditched the complicated compromise formula he had raised 24 hours earlier, under which 20 per cent of the shares would be held in trust, 40 per cent would be sold, and 40 per cent retained in public ownership. Then, he tried to break the rebels' opposition by offering them another compromise of selling 49 per cent of the Royal Mail but keeping a majority stake in the public sector, regarded by the Treasury as the worst option.

Each Tory MP in turn was invited to say if he would accept the compromise. Nicholas Winterton, the MP for Macclesfield, said: ``The view of those present was that this was not acceptable and there was a strong feeling that the Post Office should remain within the public sector.

``The Cabinet has the right to go ahead with privatisation, but it will clearly realise they don't have the numbers to do it. Mr Heseltine was his normal persuasive self but on this occasion he didn't succeed in persuading.''

Another of the rebels, Gary Waller, the MP for Keighley, thought the whole privatisation plan would be dropped by the Cabinet. Hugh Dykes, the Tory MP who led the rebels, was not at the meeting.

Mr Heseltine will tell Cabinet colleagues that if they go ahead with a Post Office privatisation Bill, the Government could suffer a devastating defeat. That message will be reinforced by the Chief Whip, Richard Ryder.

Kenneth Clarke, the Chancellor, who will also report to the Cabinet, yesterday bemoaned the loss of nerve over privatisation. He said Britain led the world by successfully selling state assets, but privatisation had been ``given a bad name'' by water industry managers who had awarded themselves high salaries.

Post Office union leaders warned the Cabinet to drop its plans. But Bill Cockburn, chief executive of the Post Office, said further delay would play into the hands of competitors.

The cautions tone of the Queen's Speech will be set by the Bills which are not in it. The Employment Secretary, Michael Portillo, has dropped plans to impose no-strike deals on emergency services. There will be no housing Bill to stop single mothers jumping the council housing queue. Michael Howard, the Home Secretary, expects to be denied time for a second Criminal Justice Bill after the controversy over this year's measure.

The key measures will be the cuts in social security spending with a Bill to introduce the Job Seeker's Allowance, and a Bill to equalise the pension age. Other measures include two Bills on abolishing the NHS regions and introducing supervision orders for the mentally ill; and a Bill to abolish the private monopoly of British Gas.

Heseltine wounded, page 9

Letters, page 19

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