MP wants Royal Mail plan scrapped

A Royal Mail worker removes parcels from her van in Ashbourne, in this file photo from February 24, 2009.

LONDON (Reuters) - The influential chairman of parliament's Treasury committee urged the government on Wednesday to scrap plans to sell part of Royal Mail and to find a public sector solution to its problems.

John McFall, a senior Labour MP, said it was not clear that "in these difficult economic times, it is at all sensible to sell any prized asset, never mind a large piece of the Royal Mail."

McFall, in an article for the Guardian's website, suggested the government could raise bank debt or issue bonds to inject new cash into Royal Mail rather than push on with its plan to sell up to 30 percent of it.

Prime Minister Gordon Brown's government has proposed selling a stake in Royal Mail as part of a package of measures aimed at making the company more efficient and closing a pension fund deficit that McFall said had grown to 9 to 10 billion pounds.

But a law to sell a stake in the company has run into opposition from members of the Labour Party, creating a problem for Brown just after he has stamped out an attempted revolt against his leadership of the party. Many left-wingers in the party oppose part-privatisation of a key public service.

Private equity group CVC Partners has offered just under 2 billion pounds for the Royal Mail stake, but the government considers the bid not high enough, according to press reports.

The government says it remains committed to the sale plan, already approved in the House of Lords. However, it has delayed introducing it into the House of Commons, raising speculation it may be having a rethink.

If Royal Mail needed just 300 million to 400 million pounds for its modernisation, "there must surely be a way of raising this amount that would be acceptable to all, despite the constraints on the public purse," McFall said.

Public borrowing is ballooning because of the recession, putting pressure on the government to cut back spending.

"Rather than selling a stake in the company, why not raise bank debt or issue bonds? The government ... could also convert some of its loan to the business into equity, or simply reschedule the company's existing debt repayments," he said.

"A bill (law) that provided this capital, without meaning any change of ownership, is surely a sensible proposition at this stage."

A proposed government bailout of Royal Mail's pension fund could be made dependent on the company fulfilling its modernisation plan, he said.

A government spokesman had no immediate comment.

(Reporting by Adrian Croft; Editing by Elaine Hardcastle