Fears over jobs as Government unveils Royal Mail plans

Postal unions warned of job losses tonight after the Government unveiled its controversial plans to privatise the Royal Mail, revealing there would be no upper limit on how much of the business will be sold to a company.

Overseas firms will be among those allowed to buy 90% of the Royal Mail, with 10% going in shares to postal workers, which ministers said would be the largest of its kind of any privatisation.

Business Secretary Vince Cable, publishing the Postal Services Bill, said there would be no objection to a foreign-owned group buying the postal organisation because the Government was not going on a "nationalist jihad" against foreign companies.

He revealed that the Government was considering converting the Post Office arm of the business into a mutual structure in a similar manner to the John Lewis Partnership or the Co-operative Group.

Handing ownership and running of post offices to employees, sub-postmasters and the local community would "empower" the people who knew the business best, he said.

Ministers declined to say how much money the Government hoped to raise through the sale, how much the employee shares will be worth, or how quickly the privatisation will go ahead, although it will not be before next summer.

The Government faced an immediate backlash from unions, which raised fears of job cuts and poorer services.

Billy Hayes, general secretary of the Communication Workers Union (CWU), said: "The Government has wasted no time in flogging off the country's state assets without exploring other options. This obsession with privatisation is deeply worrying."

Unite, which represents managers, said it was already experiencing job cuts, which it warned would get worse under privatisation.

The Government said the Royal Mail, which employs postal staff and owns the delivery vehicles, and the Post Office, which runs the branch network, were two "cornerstones" of British life.

The plans were aimed at securing "vibrant futures" for both, said Mr Cable, adding: "My policy is to put them on a stable footing for the future.

"Royal Mail is in a difficult position. There is no hiding the facts - mail volumes falling, a multibillion-pound pension deficit, less efficiency than its competitors and an urgent need for more capital at a time when there are huge constraints on the public purse."

Mr Cable said "substantial investment" was needed if the Royal Mail was to modernise at a faster pace and adapt better to the digital age.

Around £26 billion of pension fund assets will be taken over, but there were £34 billion of liabilities, so the Government was not acquiring a "gold mine", said Mr Cable.

"This is an important package. It will secure the services that consumers and businesses rely on. It will give employees a stable company to work for, shares in the future of the business and the secure pension they deserve. It will remove the risk to taxpayers of an expensive bail out."

Mr Cable said the Post Office was not for sale, pledging there will be no further closures. "We will break the cycle of declining visitor numbers through new ideas and new services to win back customers. There will be no repeat of the previous government's closure programmes."

Co-operatives UK had been asked to explore options for creating a mutualised Post Office, reporting back to the Government next spring.

One possible model would be a company or co-operative set up by members with an interest in the Post Office who would become its members, have a say in appointing the board, agree its long-term strategy and share in its profits.

The minister said the Royal Mail had suffered a "terrible time", but he believed its fortunes could be "turned around" and it could become a very good business.

Postal Minister Ed Davey said the Royal Mail was in a "fragile state", with declining mail volumes which was affecting its finances.

"We have to take action - no action is not a feasible way forward."

Mr Davey said he would like to see more financial and Government services offered at Post Offices, including 100% of bank accounts.

The minister, who worked as a consultant advising mail firms around the world before he became an MP, said the UK was well behind the rest of Europe on productivity, with even modern offices using 19-year-old machinery.

The CWU maintained that Royal Mail could remain profitable in the public sector under an alternative model. Mr Hayes said: "If the company has the freedom to borrow money from sources other than Government and the issues of regulation are resolved, then privatisation becomes an unnecessary ideological distraction.

"Universal services will be reduced by a privatised company interested in the bottom line, not the communities served by Royal Mail.

"The separation of Royal Mail from the post office counters is a fatal step. The commercial imperative will be for a privatised Royal Mail to use retail services other than the Post Office.

"We're very concerned that privatisation will undermine the whole concept of a universal service. In turn, this will put even more pressure to cut jobs and services."

Paul Reuter, Unite's national officer, said: "If private equity takes an interest in Royal Mail this will only be for short-term profit through asset stripping. They are not in business to provide a public service, they are out to make money, pure and simple."

Moya Greene, Royal Mail Group chief executive, said: "Deregulation of the UK postal services market is long overdue and I'm delighted that the Government has made it clear that where there is competition, the shackles of regulation should be rapidly removed.

"Royal Mail is a great organisation which has made enormous strides in modernising over the last few years but with mail volumes continuing to fall quickly and competition intensifying we need to step up the pace. That means we need more capital, deregulation to allow us to compete fairly while safeguarding the universal service obligation, and the removal of the historic pension deficit."

National Federation of SubPostmasters general secretary George Thomson said: "Years of neglect, broken promises and lack of vision from government towards our post offices mean that we really are now drinking in the last chance saloon. It is therefore absolutely essential that ministers get this right this time.

"Subpostmasters across the country have real concerns about this Bill and its potential impact on their post offices and their customers. Unless ministers swiftly put in place measures to safeguard our post offices their very survival will remain in jeopardy, risking the wellbeing of 20 million customers."

Robert Hammond, of Consumer Focus, said: "Consumers need this Bill to be about much more than getting Royal Mail out of its structural predicament. The issues it faces are critical and need to be resolved, but preserving Royal Mail is not an end in itself."