Mandelson signals no retreat on Royal Mail

A Royal Mail van is driven in London in this February 24, 2009 file photo. Business minister Peter Mandelson warned unions and party rebels on Sunday that their opposition to the part-privatisation of the Royal Mail could cost Labour votes at the next general election.

LONDON (Reuters) - Business minister Peter Mandelson warned unions and party rebels on Sunday that their opposition to the part-privatisation of the Royal Mail could cost Labour votes at the next general election.

Mandelson paved the way for the sale of up to 30 percent of the state-owned postal services firm last week in return for the government guaranteeing a universal service and taking over the company's 8 billion pound pension deficit.

In an interview with the Observer, Mandelson accused unions of using scare tactics and failing to represent ordinary postal workers.

"I think a lot of the workforce of the Royal Mail won't be thinking of the politics of this but about their pension and their job security. Both are in danger if we do not sort out the finances of the Royal Mail," he said.

"I realise the point of the propaganda is to scare the public and to reduce support for what we are doing. But that also runs the risk of costing Labour a lot of votes."

Prime Minister Gordon Brown mounted a vigorous defence of the plan on Saturday, despite being jeered by more than 100 postal union workers as he arrived to speak at Labour's National Policy Forum in Bristol.

Nevertheless, the issue could land Brown with his biggest rebellion since becoming prime minister. More than 130 Labour parliamentarians are expected to vote against the plan, meaning the government may have to rely on support from opposition parties to get it through.

NO TURNING BACK

Growing competition from email and mobile phones has resulted in a drop in demand for Royal Mail's services.

Describing the company as "balance sheet insolvent," Mandelson said there could be grave consequences if private investment were blocked.

"They may succeed in defeating the legislation, but in the process they'll defeat the turnaround in finances. They will defeat our ability to sustain the universal service. They'll defeat the pension bail out," he told the Observer.

Speaking on the BBC's Andrew Marr programme, Harriet Harman, deputy leader of the Labour party, also threw her weight behind the part-privatisation plan.

"We need to act because we need to ensure the future of the Royal Mail," Harman said. "We need to have capital investment and the right sort of expertise."

"We cannot allow the Royal Mail to slide," she added.

The government aims to sign a deal with a partner by this summer. Dutch logistics company TNT has already put its name into the frame.

The Sunday Telegraph reported that Belgian postal group De Post-La Post was also interested, along with companies in Germany, Denmark and Sweden.

Billy Hayes, general secretary of the Communication Workers Union, accused the government of nationalising the pension fund and privatising the profit.

"Why fix the pensions, take on 27 billion pounds of assets and then give the benefit of that to a company like TNT?" he said to Sky News. "The British public don't want their post office owned by a Dutch company or a German company."

(Editing by Will Waterman)