Speaking at the annual Labour Party conference in Bournemouth, Mr Byers told delegates that the new Post Office regulator will set the monopoly.

Unions and some left-wing members of the Labour Party had been hoping the Post Office would retain its monopoly on letters and parcels which cost up to £1 to post.

Moving to ease their fears, Mr Byers said: "I know there have been concerns about reducing the monopoly to 50p.

"Last week the Trade and Industry Select Committee recommended that the level of the monopoly be determined by the new regulator - I agree with them and that's what we'll do."

The move was aimed at preventing a confrontation with postal workers' unions.

And the minister insisted the Post Office needed greater commercial freedom and said it would be offered the potential to borrow an extra £600m over the next three years.

Stephen Byers: Backing the select committee's report

Mr Byers also told delegates that new laws will ensure a universal postal service.

''For the first time ever, we will enshrine in law the obligation to provide a universal service - same price to deliver a letter anywhere in the country - whether it's the Isle of Dogs, Isle of Wight or Isle of Arran,'' he said.

Unions remain concerned to ensure that despite the Post Office's greater commercial freedom it should remain in the public sector.

The Communication Workers Union has been pressing for Labour to include a commitment in its next manifesto that the Post Office will remain in public ownership.

But the union, which met ministers on Tuesday, has been told that no decisions are being taken at this year's conference on the manifesto.

The union's general secretary Derek Hodgson had warned on the eve of Mr Byers' speech that the government would have a fight on its hands if it did not "back off" over reducing the monopoly.