Listen to Stephen Byers' speech

Trade and Industry Secretary Stephen Byers told MPs the Royal Mail's monopoly on letter deliveries would be reduced in return for more commercial freedoms.

The proposals would allow the service to "offer a world-class service for the 21st century", he said.

The BBC's Peter Morgan: "Not everyone thinks it's a neat solution"

But the white paper has been condemned as a "mucky compromise" by the Conservatives.

Under the proposals, the Post Office's exclusive right to deliver letters and parcels will be cut from those costing less than £1 to those priced 50p and under from April 2000.

Stephen Byers: Publishing the White Paper

The white paper would end the uncertainty that had dogged the Post Office over the past decade, said the trade secretary.

The plans were the most radical set of reforms since the modern Post Office was created in 1969, he continued.

But Mr Byers denied the measures were privatisation by "stealth".

The government will continue to own all the shares in the organisation, a move designed to reassure trade unions and backbench Labour MPs that there are no plans to privatise the service.

Primary legislation would be needed to transform the Post Office into plc and it would also be needed to sell off its shares, he said.

"We intend to provide commercial freedom while maintaining the Post Office in public ownership."

The BBC's Norman Smith: "Mr Byers only used the 'P' word once in his speech"

Mr Byers described to MPs the changing world of postal services, being modernised by the Internet, couriers and European rivals.

The white paper would give the Post Office "the freedom to grow and the means to succeed", he said.

The BBC's Emma Simpson: "Rural post offices are a vital service"

For the first time there will be criteria established for the access to the Post Office network, Mr Byers said.

The white paper would lay down in law a commitment for a universal service so the cost to send a letter would in the UK be the same regardless of distance.

It will also see a reduction in proportion of profits the Post Office pays to the Treasury.

Tory critics

Shadow Trade Secretary Angela Browning called the white paper a "dog's breakfast", being a "mucky compromise" between old and new Labour.

She said that under Mr Byers' proposals the Post Office would not offer a 21st century service and would end up being fully privatised.

Colin Breed for the Liberal Democrat said the proposals were "balanced and rather timid".

The Communication Workers' Union fears the proposals could herald another battle over privatisation following its successful campaign against the previous Conservative government's sell-off proposals.

But its General Secretary, Derek Hodgson, said: "We do not believe a Labour government would contemplate selling shares in the Post Office and I look forward to this being confirmed."

Analysts believe this move could lose the Post Office up to 5% of its domestic business, cutting £100m from its profits.

More freedom

The Post Office has been increasing its commercial activities in the past year but is keen for more freedom to compete against overseas rivals.

Post Office Chairman Neville Bain welcomed the proposals, saying: "This is a decisive first step in the right direction towards real commercial freedom.

"It provides a clearer way forward, enabling us to develop our services and tackle more effectively the growing competition all around us."

Mr Bain said the balance of the white paper looks broadly right but its consequences for the Post Office's finances overall were difficult to predict.

Dr Tom Begg: Broad welcome for White Paper

Dr Tom Begg, Chairman of the Post Office Users' Council for Scotland, welcomed the prospect of investment to keep pace with technological advances.

But he said rural services were a "genuine matter for concern".

The new Post Office Regulator would have the task of laying down minimum service standards.