Labour humiliated as Royal Mail sale is halted

Critics said the move, hard on the heels of the scrapping of compulsory ID cards, was a humiliating climbdown and showed Gordon Brown's administration was in a "state of paralysed indecision".

It adds to a series of blows to Mr Brown, from the 10p income tax fiasco to the reversal of his decision to hold the Iraq inquiry in secret, and comes a month after he was undermined by a series of Cabinet resignations and forced to fight for his political life.

There were warnings last night that the failure to press ahead with the modernisation of Royal Mail – which has been riven by industrial disputes and hit by a slump in business due to the rise of e-mail – would leave customers paying higher prices for a poorer service.

Business Secretary Lord Mandelson said the Postal Services Bill, which has already passed through the House of Lords and was awaiting debate in the Commons, was being put on hold until "market conditions" improved.

But the political reality was that Mr Brown faced a major back-bench rebellion, with 181 MPs opposed to the proposals, and would have had to rely on Conservative support to pass the measures into law.

The bill would have allowed the sale of a 30 per cent stake in Royal Mail, generating some 2 billion to reinvest in the service, which has suffered from decades of under-investment and has a 6.8bn pension fund deficit.

Lord Mandelson said only one bidder had come forward and, as a result, he could not allow the process to continue, as he could not guarantee the UK taxpayer would receive value for money.

The decision to place the bill in the "deep freeze" sparked concern that many provisions that had cross-party support, such as the government taking responsibility for the pension fund and the appointment of a new postal regulator, would also be lost.

Lord Mandelson, who had previously blamed a shortage of parliamentary time for a likely delay in the bill being debated in the Commons, said the entire draft legislation was now being shelved. He said it would be irresponsible to "cherry-pick" provisions and that the bill should continue only as a whole.

He told the Lords: "Market conditions have made it impossible to conclude the process to identify a partner for the Royal Mail on terms we can be confident would secure value for the taxpayer.

"There is no prospect in current circumstances of achieving the objectives of the Postal Services Bill. When market conditions change, we will return to the issue."

However, shadow business secretary Ken Clarke said: "There is paralysis at the heart of this government's decision-making. Peter Mandelson said recently that the government was committed to the policy of part- privatisation and that the Royal Mail was in a crisis.

"He has frequently said that the status quo is not an option. He is now leaving the Royal Mail to slide into more rapid decline."

He added: "The real reason for delay is that Peter Mandelson cannot persuade his colleagues to back the flagship bill of his department."

SNP MP Mike Weir called for the part-privatisation to be ruled out permanently. "By threatening to resuscitate privatisation plans later, Lord Mandelson is creating continued uncertainty for Royal Mail workers and customers," he said. "This humiliating climbdown, hard on the heels of a U-turn on ID cards, shows the UK government is in complete chaos."

John Thurso MP, the Liberal Democrats' business spokesman, said the decision left the Royal Mail in "limbo". He said: "It is quite clear that Gordon Brown no longer has the political will to fight the unions and opponents on his own back-benches."

Labour's Michael Connarty, who chairs a group of MPs representing the Communications Workers' Union, called on the government to continue with the reforms, minus the part- privatisation proposal.

He said there was an urgent need to modernise the Royal Mail's delivery practices and improve industrial relations. Without this, he warned the country risked a summer of industrial action due to "unreasonable" management demands. He said: "The idea that it's stuck into the deep freeze is not good for the Royal Mail, it's not good for the people who use the Royal Mail, and it's not good for UK plc."

He said the Prime Minister was right to halt the part-privatisation, adding: "Gordon has seriously engaged with the concerns of the wider community. What that means is that the deck is cleared of a lot of rubbish. I think that is a good thing overall."

Profitable...but beset by many problems

THE privatisation – full or partial – of the Royal Mail has been on the cards for years. John Major's Conservative government failed to achieve it in 1994. The aim is to reshape an organisation with many problems, from the size of the pension fund deficit – approaching 8 billion – to outdated working practices and poor labour relations.

As a result, the service received by the public has suffered, a fact acknowledged in a review by Richard Hooper, published last year, which led to the Postal Services Bill.

Despite posting a 255 million profit for the first nine months of 2008, Royal Mail is generally less efficient and profitable than its main European peers. Attempts to reduce the pension deficit are a major drain on its activities, and mean the company is technically insolvent. Pricing is also an issue – raising prices is no longer guaranteed to plug falling volumes of business. Royal Mail predicts a 7 per cent fall in letters and parcels this year as a consequence of increased use of the internet.

The government had also hoped to separate Royal Mail's letters and parcels business from the Post Office's network of 11,500 branches, which has been cut by 2,500 over recent years in an efficiency drive.

ANALYSIS

Gerri Peev: Survival instinct leads Brown to add another U-turn to his collection

THE gentleman is clearly for turning. After performing more bends than Uri Geller manages on a spoon, Gordon Brown has consistently proven his inconsistency.

The Prime Minister has so far managed to purge his portfolio of policies as diverse as scrapping the 10p tax rate, abolishing compulsory ID cards and ditching plans for a "clocking-in" fee for MPs.

Shelving part-privatisation of Royal Mail yesterday became the latest in this series.

Opposition MPs claim it shows he is incapable of running the government, implementing policy or following through on his stated intentions.

But that "chaos theory" is to overlook one unifying element behind these policies: they were all vote losers.

Perhaps the Prime Minister – faced with an election by next spring and at least two awkward by-elections before then – is more pragmatic than critics give him credit for. And what could be a more pragmatic consideration than survival?

He is clearing the decks for a general election, getting rid of policies that will be impossible to sell to his own party, let alone the electorate.

Behind the Royal Mail U-turn lurk other considerations for Mr Brown. He was confronted with an early day motion signed by 181 MPs – around 140 of them his own backbenchers – opposing the Postal Services Bill. The very tribal Mr Brown has eschewed the possibility of relying on the Tories to force through his policy.

One senior, often outspoken Labour MP even suggested that rather than characterising the Royal Mail decision as a humiliating climbdown, it was more a demonstration that the Prime Minister was listening to his party.

Another element would have plagued his conscience. Money. Unions, Labour's major bankrollers, opposed the sell-off of the Royal Mail. The Prime Minister cannot afford to further alienate the financiers.

After the year he has had, it is little wonder he does not want to start a civil war with his own team. If only Mr Brown could make up his mind in which direction he was heading.