Ministers warned against Royal Mail sell-off

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Taxpayers will lose hundreds of millions of pounds if the government presses ahead with its plan to part-privatise Royal Mail, ministers have been warned.

Compass, a leading left-wing pressure group, says a financial analysis it has carried out on the likely revenues of a partial sale of the business will see the Treasury net less than half the value it would have secured a year ago because of the economic crisis.

While the report is described as "flawed" by Lord Mandelson, the Business Secretary, it has led to renewed calls by backbench Labour MPs, who are prepared to defy the government and vote against the bill, for the plans to be dropped.
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Jim McGovern, the Labour Dundee West MP who resigned as a parliamentary private secretary over the issue, said the report vindicated his decision. "I could not support the proposals when the minister responsible for Post Offices, Pat McFadden, announced them, and the new evidence from Compass would seem to suggest that the decision was correct."

The scheme is closely associated with Lord Mandelson, who appears to want to test the Labour backbenches and trade union supporters of the party over the reform.

According to Compass, a 49% sale of Royal Mail based on this year's profits would net £1bn, but the figure would have been £1.9bn a year ago. Key private sector players, including the Dutch company TNT, have been involved in preliminary talks with Lord Mandelson.

The report has concluded that the one-off windfall to the Treasury would be "wiped out" in less than two years if Royal Mail stayed wholly publicly-owned and all profits are reinvested in business modernisation instead of paid out as a dividend to shareholders.

Neal Lawson, Compass chairman, said: "We don't doubt the good intentions of the government to modernise Royal Mail but these figures destroy the rationale for part-privatisation."

The Postal Services Bill is presently going through detailed scrutiny in the committee stage in the Lords and is expected to be voted on in the Commons before the summer recess. That process could still be delayed or defeated, with left-wing MPs now calling for the plans to pass a "value-for-money" test before they are approved.

More than 100 Labour MPs have signed a Commons motion attacking the government's plans, threatening the biggest backbench rebellion against Gordon Brown since he became prime minister.

Ian Davidson, Labour MP for Glasgow South West, said: "Putting aside the principle of privatisation, there is now an issue of value for money and making the maximum possible for the public purse out of any sale. It looks as if this part-privatisation would fail on both these grounds."

At their weekend party conference, the SNP vowed to make Lord Mandelson's plans a populist issue in the forthcoming European election campaign.

Compass is an independent democratic left pressure group, aligned to the Labour Party, which was launched in 2003.

Lord Mandelson said its analysis was flawed because it did not take into account Royal Mail's loss-making letters business, saying it amounted to no more than "back of an envelope figures".

"It is interesting that Compass seems to suggest that partnership should have been pursued earlier but their analysis is not a credible contribution to the debate and poses no answers to the very serious challenges that Royal Mail is facing," he said.