David Prosser: Mandelson condemns Royal Mail

Outlook No doubt the champagne corks have been popping in trade union officials' offices since yesterday's volte-face on Post Office privatisation. Sadly for the members they represent, the hangover from Lord Mandelson's failure to push through an unpopular policy is going to be really nasty.

Opposition to part-privatisation of Royal Mail has mostly been based on fears it would be a step on the way towards the end of the universal delivery service, as well as leading to further closures of post office branches. The problem is that without finding a way to help Royal Mail compete in more lucrative markets, facilities and services that don't make a profit will become ever more difficult to provide, adding to the burden on the taxpayer.

Privatisation remains the only hope for the organisation's long-term future. When it deregulated parts of the postal market – especially for services to business – the Government invited Europe's leading logistics firms, both big and small, to compete with Royal Mail. A good thing too, but starved of capital with which to invest, chiefly because of its enormous pension liabilities, the incumbent market leader was always going to be at a major disadvantage.

The status quo, which we will have to put up with until political expediency allows, leaves the Royal Mail forced to provide unprofitable services and starved of the capital needed for the modernisation required if it has any chance of competing in those markets where a return is to be made. Moreover, the longer the sale is put off, the worse off the organisation will get and the less hope it will ever have of competing.

Depressingly, this is a row that has already been rumbling on for much of the past two parliaments. Some of the predictions about the dire consequences of deregulating the postal services market without tackling Royal Mail's legacy problems have already come true – witness the decimation of the branch network we have already seen, and not just in remote rural areas. In the absence of any action, this trend will continue, until Royal Mail itself has to begin lobbying for reform of its universal delivery service duties.

To add insult to injury, we have just been through a two-year period that presented Royal Mail with some golden opportunities, if only it had had the means with which to capitalise on them. The banking crisis was post offices' chance to make a credible bid for a greater share of the financial services market. But that chance is now slipping away.

All of this will no doubt be lost on those on the left for whom Royal Mail privatisation has become one of those touchstone issues. Their victory yesterday, however, will prove to be both pyrrhic and temporary.