The operation, which employs 2,000 people, has shrunk over the past couple of years largely because of the Government’s decision to pay most benefits direct into claimants’ bank accounts.

The closure of nearly 3,000 post offices in recent years has also hit the cash-handling business. Although other functions such bureaux de change have grown, Royal Mail last week told unions that it needs to consider the future of cashhandling.

However, it is believed that the organisation is committed to keeping cash-handling for internal purposes — such as the movement of money and stamps around branches — although its work for external customers could be under threat. Royal Mail does some cash-handling work for retail and financial services companies.

No deadline has yet been set for a conclusion of the review. However, Royal Mail is familiar with the problems facing the business. Two years ago it attempted to outsource the division but met with stiff opposition from the Communication Workers Union (CWU).

The switch from paying benefit claimants in cash has greatly reduced business for both cash-handling and post offices, some of which received 40 per cent of their income from benefits work. Out of the benefits claimant base of 12 million, only 4.5 million now have direct need of a post office. About 4.2 million have Post Office card accounts, into which benefits are paid, and 300,000 have yet to switch to any of the Government’s preferred methods of payment and so still cash giro cheques at post offices.

A spokesman for Royal Mail said: “We need to ensure we have got the most secure and cost-effective cash operation serving our branches. We have a strategic decision to take as our business changes and we have just started a consultation process with our unions to get their input.”

The CWU declined to comment ahead of a meeting with Royal Mail managers today. It is not thought that any of the job cuts will be compulsory.

Over the past three years Royal Mail has cut 30,000 jobs as part of its efforts to restore the business to profitability.

Yesterday the Labour Party conference faced a demonstration from postal workers protesting against any privatisation of the state-owned business. Privatisation fears have been rekindled as details have emerged of Royal Mail’s plans to give a stake in the business to employees. Yesterday The Times revealed that the stake is expected to be as much as 20 per cent, in a move that could give each postal worker a shareholding worth £5,000.

A new structure for Royal Mail will be revealed when Sir George Bain produces a report on the organisation for Alan Johnson, the Trade and Industry Secretary. The report is expected to be delivered by October 21.

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