Vince Cable to privatise 'inefficient' Royal Mail

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The Royal Mail faces partial privatisation under new government plans to safeguard the universal postal service which unions warn would damage the service for consumers and businesses as well as threaten the existence of post offices.

A report originally ordered by the Labour government but updated for the Coalition warned that "urgent action" was needed to protect the troubled company and that private investment was necessary to speed up modernisation of the postal service.

The businessman Richard Hooper said in the report that only an injection of private capital would provide the funds necessary to overhaul Royal Mail, which last year made a profit of £404m but is seeing the volume of post it handles steadily decrease, at a time when public cash is unavailable and the company itself cannot generate the necessary money.

Vince Cable, the Business Secretary, said he would accept the latest findings of Mr Hooper, the former deputy chairman of Ofcom. A new Postal Services Bill expected in the autumn will result in either a flotation or partial sale to private investors.

Mr Cable, who indicated the Bill would include proposals to give Royal Mail employees a significant stake in the business, said: "Royal Mail is facing a combination of potentially lethal challenges – falling mail volumes, low investment, not enough efficiency and a dire pension position."

The Communication Workers Union (CWU), which represents staff at the group, described the privatisation as "old politics" and said it would use "all means" to fight the move. The union, which held a series of strikes last year over modernisation and has not ruled out fresh industrial action, pointed to a YouGov poll conducted on behalf of the CWU last month that showed that just 15 per cent of the public supports Royal Mail privatisation.

In his report, Mr Hooper painted a bleak picture of the current state of the postal industry. He said that the rate of decline had accelerated since his initial findings were published and that he now expected letter volumes to fall by as much as 40 per cent in the next five years.

He added that one of Royal Mail's biggest problems – its burgeoning pension-fund deficit – had also deteriorated and that the £8bn hole identified earlier this year "is even more unsustainable than 18 months ago".

Unions and postmasters expressed alarm at the prospect of the separation of the Royal Mail from the post office network under privatisation. George Thomson, general secretary of the National Federation of SubPostmasters, said: "We need to be certain that our treasured network of post offices, which provide vital services to communities and small businesses across the UK, will not in any way be jeopardised as a result of these proposals."

Billy Hayes, the general secretary of the CWU, said privatisation would lead to higher prices for customers and job losses. He said: "It's the failed politics of history which brought disruption to Britain's utilities and railways and astronomical prices for consumers."