The postal regulator will reignite union and Labour backbenchers’ fears today over a privatisation of Royal Mail by calling for banks to take a stake in the ailing postal group.

Postcomm is taking its most radical stance yet on the future of the state-owned business amid mounting financial problems at Royal Mail. The regulator argues that unless “bold actions are taken very quickly” the letters business will sink farther into decline. It says that the present business model is unsustainable.

Royal Mail said last week that it would soon have to ask the Government for more cash as its pension problems deepen and its market shrinks. Royal Mail reported annual losses of £279 million and said that it expected its pension deficit to double to £7 billion, triggering costs of £1 billion a year. Only last year the postal group received a £3.9 billion state rescue package.

Postcomm rejects the call for more public money. The regulator wants private cash to be put into Royal Mail — which opponents will see as partial privatisation — in its submission to a Government-commissioned review of the postal market.

Nigel Stapleton, the Postcomm chairman, said that Royal Mail “needs access to private capital to fund and incentivise a radical transformation of the business . . . Postcomm wants to see the Government and Royal Mail embrace a partnership approach with the private sector to secure a universal service [the flat rate charge for post going any distance] valued by all users and provided at least cost, without public funding.”

It is likely that banks would want some stake in Royal Mail in return for providing cash.

An equity holding for banks is a move that Allan Leighton, the chairman of Royal Mail, tried to push through several years ago but the Government ruled it out.

His attempts to give staff shares in the operation were also quashed as the Communication Workers Union and Labour backbenchers mounted a strong campaign against it.

Labour said in its last election manifesto that it remained committed to Royal Mail staying in public ownership. However, several years ago it had talks with the Dutch post office, which is and was a commercial organisation, about creating a joint venture.

Postcomm has no power to bring about a change of ownership and structure for Royal Mail but its recommendation to the independent Hooper review on the market will be powerful ammunition for Royal Mail to renew its calls to become more commercial.

This month the Hooper review said that the postal market was not working properly because Royal Mail has heavy public obligations, through the universal service, but is losing lucrative business to rival operators who have no such duties. The review is expected to make full recommendations on what action to take in the autumn.

Postcomm is also calling for Royal Mail’s present exemption from VAT to be scrapped.

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