Heseltine fails to deliver : LEADING ARTICLE

The future of the Post Office looks bleak. Yesterday the Government indicated that it will continue to handicap the industry despite a compelling case in favour of loosening controls. As a result, ministers have adopted a policy that they would su rely have condemned as commercially unsound if a Labour government had tried to implement it.

Michael Heseltine delivered the bad news yesterday. He informed MPs that the Government does not intend to give the Post Office far-reaching commercial freedoms as long as it remains within the public sector. In other words, rapidly expanding competitionfrom private couriers, fax, foreign-owned post offices and electronic mail will be allowed to gain ground while the British Post Office is still at the starting gate.

Mr Heseltine knows that this is a disastrous policy. An eloquent advocate for privatisation, he yesterday grieved again for a Post Office sell-off that was shelved last November when a minority of Tory MPs lost their nerve in the face of Labour's scaremongering. Mr Heseltine, having argued so convincingly for the freedoms springing from privatisation, cannot now justify a fettered alternative that would leave the Post Office ill-equipped to make investment decisions to prepare for rapidly expanding comp etition.

Mr Heseltine cannot satisfy us by wringing his hands and lamenting the feebleness of those colleagues who opposed privatisation. It will benefit no one if he eventually proclaims triumphantly "I told you so", as the Post Office sinks into decline. We need a hybrid policy from him now which can still offer the benefits of a privatisation that is clearly not politically possible, at least in the present House of Commons.

The Government's inflexibility is also handing Labour the political high ground. If the Post Office fails to thrive, Labour should be blamed. It played on public fears and refused to recognise that the benefits of state ownership - universal service and a single stamp price across the country - could be secured by regulating the industry once it had been privatised. But at least Labour does not now share the Government's stubborn refusal to untether state enterprises from financial strictures. In practice, Labour is now more Thatcherite than the Tories on Post Office policy.

Mr Heseltine offered familiar reasons for his stance. If the Post Office was allowed to borrow freely while still in the public sector, the Government would lose control of the public finances. The Post Office, in having its debts ultimately underwrittenby the Government, would enjoy an unfair advantage over its competitors.

These represent reasonable objections to dropping controls on state enterprises. But the Post Office is a special case. It makes a good profit, so government backing is of little importance. Surely some way could be found of separating it from other state industries so that it could operate more like a private company. Given the Government's recent experiments with private finance for building hospitals, prisons and the Channel tunnel, some creative thinking could solve the problem. Such a mov e would not preclude privatisation at a later date, if a Commons majority was prepared to back the change.

If the Government fails to explore these options, the suspicion will grow that the best interests of the Post Office and the public have been subordinated to the narrow concerns of the Conservative Party. A letter leaked last year from David Hunt offers support to this fear. It warned that relaxing Treasury constraints on the Post Office would undermine the Government's approach to privatisation "in the past and in the future".

In other words, Cabinet ministers are worried that a workable halfway-house solution - somewhere between public ownership and privatisation - would damage the Government's ideological stance. Labour could claim that there is indeed a successful alternative to the sell-off of state industries.

The implications of this analysis are deeply worrying. They suggest that the Government may have a political investment in the economic decline of a non-privatised Post Office. Mr Heseltine and his colleagues have yet to convince us that they are acting,as they now must, in the public interest.