LEADING ARTICLE:Red star over New Labour

Old Labour has bathed in the media sunshine this summer, after a year in which the shiny, happy faces of New Labour have stolen the show. Tony Blair will not worry about the silly season grumblings of the has- beens and the won't-bes. What should worry him is this week's outbursts from Michael Meacher over the proposed sale of British Rail's Red Star parcels business. "Red Star is a privatisation tragedy," he trumpeted, the result of "Tory free market dogma". It would seem that market-friendly New Labour reforms have left him in the sidings.

What has incensed Meacher is the proposed Red Star management buy-out for just pounds 1. British Rail first tried to sell Red Star two years ago, but could not find a purchaser. Since its parcel delivery arm has been losing around pounds 9m a year, this is hardly surprising. Instead, Meacher's outrage is the surprise.

Red Star will go for a nominal sum because it's not worth anything. True, on the plus side, there is brand name, reputation and customer loyalty. But this is outweighed by the multi-million losses and all Red Star's liabilities, such as workers' employment rights .

Ah - privatisation is to blame for the losses, says Michael Meacher. Red Star's dismal performance is the result of the change in British Rail policy. Before 1987, Red Star was able to make use of BR trains and staff for virtually no charge. Since 1987, with the introduction of internal units and operating charges, Red Star became less competitive and turnover fell from pounds 75m to pounds 38m. But all this shows is that Red Star is too inefficient to cope without a huge hidden subsidy.

In fact, many in the business think that Red Star was already losing a packet in the Seventies. Its performance has simply been obscured within the huge overall losses made by BR.

Regardless of BR's record of inefficiency, there are legitimate points of concern over rail privatisation. But there is no reason why a parcel delivery firm should be allowed to go on making a loss, nor why it should stay in public hands. The overnight delivery of parcels is hardly the kind of vital public service you would expect to see guarded in the public domain.

Parcel delivery is already a fiercely competitive industry, and there are plenty of private sector firms. If the Red Star management team does well, it may well be able to turn the corner and start making money. This will be funded by bankers rather than taxpayers. If the managers are no good, the market will take care of them. They will either be exposed in the private sector and sacked, or the firm will go under or be taken over.

Whether Red Star's management will be given this chance depends on the Transport Secretary, Sir George Young. He should ignore Michael Meacher's claim that the taxpayer is being ripped off and give the go-ahead. Tony Blair, however, should not ignore Meacher's campaign; he needs to be told that New Labour is not about the state ownership of small businesses.