Post Office gets freedom in public sector

THE POST OFFICE is to be given more commercial freedom but at the same time kept within the public sector, the Government is expected to announce today.

In what amounts to a defeat for the Treasury, the President of the Board of Trade, Margaret Beckett, is due to tell MPs that the option of partial privatisation has been turned down in favour of retaining the Post Office as a public body.

Whitehall sources were playing down suggestions that the Government will change the status of the Post Office to that of a public corporation or trust.

But it is clear that the new framework proposed for the organisation will give it greater freedom to invest, wider borrowing powers and the right to enter joint ventures with the private sector.

The Treasury had wanted to keep open the option of selling off part of the Post Office. A sale of 50 per cent of the business could raise up to pounds 2bn. Only last month the new chairman of the Post Office, Neville Bain, said that privatisation was still on the agenda.

However, this appears to have been firmly ruled out. Mrs Beckett will announce the decision in a written reply setting out the terms of reference for the second phase of the Government's review of the Post Office.

In its evidence to the Select Committee on Trade and Industry, the Post Office said its favoured option was to be made a public corporation. This would put it outside the scope of the public sector borrowing requirement (PSBR) and free it from the strait-jacket of its External Financing Limit (EFL), which the Government uses to milk cash from the business at the rate of pounds 1m a day.

The Post Office's EFL is due to rise from pounds 330m in the last financial year to pounds 335 in the year just started and pounds 345m in 1999/2000. Mr Bain said last month that if the Government continued to take cash out of the business at the same rate, without giving it greater commercial freedom, then its value would halve from the present level of pounds 3.25bn in five years.

The new arrangements will give the Post Office the right to enter joint ventures with private sector partners and offer services such as insurance to compete with other financial institutions. If it is freed from the PSBR it will also be able to operate more like a commercial company, paying its shareholder a dividend rather than having to meet the cash targets laid out in the EFL.

The Post Office has frozen letter prices until at least April next year. The last time it increased the price of stamps, in July 1996, it was in order to meet an increase in the EFL.