Page last updated at 02:32 GMT, Thursday, 2 July 2009 03:32 UK

U-turn claim as Mail sale shelved

Lord Mandelson: 'Now is not the time to sell a minority stake in Royal Mail'

Labour has been accused of another U-turn after Lord Mandelson said the partial sell-off of Royal Mail will not proceed in the "current circumstances".

The business secretary announced in the House of Lords that the state of the economy had made it "impossible" to complete a deal on favourable terms.

Senior Labour MP John McFall denied the move was a blow for the party, saying the taxpayer must have value for money.

The Tories said the government was in a state of "paralysed indecision".

The partial sell-off, opposed by many Labour MPs, had been due to go before Parliament before the summer break.

The shelving of the plan follows Tuesday's partial U-turn on ID cards and a Commons defeat on part of its bill to clean up Parliament.

The BBC's Political Editor Nick Robinson said these setbacks showed that the government was struggling to impose its authority on an almost daily basis.

'Impossible to conclude'

Lord Mandelson said the government remained convinced that selling off part of the Royal Mail was the best way forward and the issue would be revisited when market conditions changed.

James Landale
BBC chief political correspondent James Landale says:

This is a huge setback for the government.

Royal Mail part-privatisation was the key litmus test for public sector reform for Gordon Brown's administration.

But this is Lord Mandelson recognising political reality - namely that if no-one is going to buy this bit of the Royal Mail, it was simply not worth all the political aggravation and battles with Labour backbenchers that he would face.

Ministers are being very open about that - there was no point having a row if the sale were not possible.

He told peers that under current market conditions it would be "impossible to conclude" the process in a manner which would "secure value for the taxpayer".

"We have thoroughly tested the market to see who is interested in partnership, but economic circumstances, I need hardly point out, are extremely difficult," he said.

He continued: "I have always been clear that we would only do a deal with the private sector if it represented value for money for the taxpayer."

Mr McFall, the treasury select committee chairman, re-iterated that the government planned to revisit the issue when market conditions changed. "We need value for money for the taxpayer," he said.

Ministers say private sector money needs to be brought in to help rescue the Royal Mail as it faces a pension deficit estimated at up to £8bn.

Former postman and Labour peer Lord Clarke of Hampstead said Royal Mail workers and management were "living without certainty" because of the pension deficit.

Lord Mandelson said this "remains a matter for the company and the pension trustees".

For the Conservatives, Shadow Business Secretary Ken Clarke said the government had been left without a credible plan for Royal Mail's future.

Shadow Business Secretary Ken Clarke: 'Government in a state of paralysed indecision'

"Their policy is to do nothing, which they have been telling us for the last few months will be disastrous for Royal Mail," he said.

The Lib Dems said the announcement had left Royal Mail in "limbo".

"This is an humiliating climbdown for the government," said the party's business spokesman John Thurso.

"It is quite clear that Gordon Brown no longer has the political will to fight the unions and opponents on his own backbenches."

And Richard Hooper, the man whose review of Royal Mail last year recommended the part-privatisation, said the company was "in crisis".

But a spokesman for the prime minister said the government would "return to the issue when market conditions change".

Pension deficit

According to BBC political correspondent Jo Coburn, a source close to Lord Mandelson said the business secretary reached the view that creating the controversy made little sense when "we knew we couldn't implement it in the immediate future".

Billy Hayes, general secretary of the Communication Workers Union - which was strongly opposed to the proposal - said the government had "not only looked at market forces but... listened to the British public".

Robert Peston
The problem for Peter Mandelson is that market conditions were - if anything - even worse on 16 December last year, when he embarked on his adventure to partly privatise this historic public service
Robert Peston
BBC business editor

The business secretary said on Monday that the bill was being "jostled for space" among other legislation ministers wanted to conclude before Parliament breaks for the summer.

Lord Mandelson said on Monday that the partial sell-off would not happen until "later", but the Lords statement is the first time he has confirmed that the part sale will definitely not go ahead in the near future.

There has been growing speculation that the partial sell-off, which is a cause of discord within the Labour Party, would not go ahead before the next election.

More than 140 Labour backbenchers had signed a Commons motion critical of the plan and there had been rumours for weeks that the scheme could be shelved.

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