ROYAL MAIL’S plan for a shares giveaway to staff may have to be scrapped or pared back because of government concern about its cost.

Senior government sources have dismissed as ridiculous Royal Mail’s claim that its plan to give 20 per cent of the business to employees would cost nothing because the postal organisation’s pension deficit means that it is worth nothing.

The sources believe that there would be a cost to the taxpayer for the scheme and want to be convinced that sufficient benefits would accrue. Royal Mail is considered to be worth about £5 billion, so a 20 per cent stake would be worth £1 billion.

Senior ministers have also said that Royal Mail “shouldn’t be wedded to one idea” and that, while the Government approves of offering staff incentives, a distribution of shares may not be the only option.

The Government is understood to have raised the possibility of a sharp reduction in the amount of shares that the 200,000 employees would receive. It has suggested as little as 5 per cent, but Royal Mail executives believe that the Government is considering 15 per cent and they remain hopeful that the scheme will win approval.

Meanwhile, a review of the post office network is to be announced shortly. This follows concerns that thousands of post offices will close in a rationalisation of the network. There are 14,500 sub-post offices — their number has dwindled by 4,000 over recent years — and the rural offices, most of which are loss-making, are supported by government subsidy. There will be a lobby of parliament next week by thousands of sub- postmasters, who are concerned that subsidy payments run out in early 2008.

The main postal union has mounted a fierce fight against share ownership and the issue is politically charged, with 199 Labour MPs signing an early day motion opposing any change of ownership of Royal Mail. A share plan would need primary legislation and, therefore, the consent of parliament. The Communication Workers Union (CWU) and Labour MPs who have signed the motion tabled by John Grogan, MP for Selby, think that the share plan would be the first step to privatisation.

Mr Grogan said: “I don’t think that Alistair Darling [the Trade and Industry Secretary] will want to confront the 199 Labour backbenchers who have signed a motion for retention of Royal Mail in public ownership for a plan which appears to have been worked out on the back of an envelope.”

Billy Hayes, general secretary of the CWU, said: “We have always regarded Royal Mail as a valuable national asset. We are keen to develop ideas to reward workers who provide a quality service, but we are totally opposed to a share ownership scheme.”

Gordon Brown, the Chancellor, will also be conscious of the political implications of the scheme as he courts union support for his bid for the Labour leadership.

The lack of resolution on the share ownership issue comes as Royal Mail and the Government are wrangling over a £1.75 billion rescue package for the business, which was announced in May. None of the money, which comes from Royal Mail’s reserves and from a government loan, has yet filtered through.

Explore Economics

• Pre-Budget Report 2009

• Budget 2009

• World Economic Forum

• The Times MPC

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive