Post defeat halts Tory sell-offs

The Thatcher revolution ground to a halt yesterday when the Cabinet shelved the privatisation of the Royal Mail and agreed a safety-first package of legislation for the next session of Parliament.

The decision to bow to the opposition of at least a dozen rebel Tory MPs, the first time a privatisation measure had been dropped since the Tories came to power, left John Major looking a weakened prime minister as he continues the task of managing a government with a majority of 14.

The Cabinet rejected all three options raised in the Post Office Green Paper: the sale of a 51 per cent stake in the Royal Mail; 100 per cent flotation; and commercial freedom within the public sector. Kenneth Clarke, the Chancellor, is refusing to remove all Treasury controls on the Royal Mail, in spite of a warning in the consultation paper that failure to free up the Post Office would lead to its decline.

Michael Heseltine last night admitted that he did not know what he would do next about the Royal Mail. Ministers will review ways of allowing it to meet competition, but there will be no legislation before the next election. After a three-hour Cabinet meeting, the President of the Board of Trade said he was bitterly disappointed. He said he had not considered it a resigning issue, but it was seen a serious blow to his career.

Senior right-wingers accused Mr Major of failing to show leadership and stand up to the left-wing rebels, and the Chief Whip, Richard Ryder, was being blamed for not advising the Government to fight on. Norman Lamont, the former Chancellor, led right-wing anger over the retreat on the Government's agenda, which could spill over into the next session of Parliament.

Mr Heseltine made clear he believed his policy had been right. ``A small minority have refused to let us do that. That is a sad day for Royal Mail.''

Michael Heron, Post Office chairman, accused the Government of leaving the corporation with a ``crippling uncertainty''. Bill Cockburn, chief executive, said the Post Office's survival hinged on escaping the shackles of Whitehall.

But the plea from the Post Office for freedom to compete on even terms came amid growing speculation that Mr Cockburn would be forced to resign from his pounds 236,000-a-year job and other top management would also go. They have nailed their colours firmly to the privatisation mast.

According to inside accounts of yesterday's unusually long Cabinet discussion - during which virtually every member spoke at least twice - Mr Heseltine eventually accepted that he could not guarantee the passage of the Bill after advice from Mr Ryder that as many as 20 rebels would vote against it.

Bills agreed yesterday by the Cabinet for the Queen's Speech on 16 November include: abolition of the private monopoly by British Gas; the Job Seeker's Allowance; two NHS Bills to abolish the health regions and introduce supervision orders for the mentally ill; equalisation of pension age at 65; agricultural tenancies reform; increasing payments to the EU; and an environmental protection agency.

Further reports, pages 2, 3

Leading article, page 17

A sell-off too far, page 19