The main postal union gave warning yesterday that it would fight any move to partly privatise Royal Mail as expectations grow that the organisation is facing a huge shake-up.

This week the Government is expected to publish an independent report that it commissioned into the postal service which will pave the way for an overhaul of Royal Mail.

The report, from Richard Hooper, a former deputy chairman of Ofcom, the media regulator, is expected to be critical of Royal Mail's operations. But it will also emphasise that the organisation is struggling to manage as it services its growing pension deficit, which it expects to double to £7 billion.

The Government is expected to take over responsibility for the deficit, clearing it from Royal Mail's books and giving the organisation a more attractive balance sheet. It is believed that Lord Mandelson, the Business Secretary, wants to bring in outside investors and joint partners to boost the business. But this move would provoke a showdown with the unions, who would be expected to campaign strongly for a Labour backbench revolt against a substantial change in the way Royal Mail operates.

Times Archive, 1929: The Post Office from within

The Post Office cannot prosper until it is set free from a form of control which is fatally inappropriate to a commercial organisation

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Billy Hayes, general secretary of the Communication Workers Union, said: “When the banks are getting nationalised, why is private capital the answer for Royal Mail?” The CWU said it would strongly campaign for “a fully integrated, publicly owned service”.

Sources close to Lord Mandelson said: “Our concern is to save the Royal Mail and secure its future, not privatise it. We have a manifesto commitment to a publicly owned Royal Mail and we will not be setting that aside.”

However, Lord Mandelson is believed to favour an involvement of outside groups in Royal Mail. The Labour manifesto commitment, made in 2005, is open to some interpretation. When it was made it was welcomed both by Allan Leighton, the chairman, who wanted to attract private investment, and the unions, who want full public ownership.

The full Hooper report is expected to follow the spirit of interim findings published in the summer. It said that there was a “substantial threat” to Royal Mail's financial stability because of the pension deficit and because of the fallout from last year's lengthy industrial action. It added that the universal service - Royal Mail's obligation to send post any distance for a flat fee - was also threatened because of the organisation's weak financial position.

It said then: “We have come to the conclusion, based on evidence submitted so far, that the status quo is not tenable.”

Royal Mail will welcome the Government taking control of the pension deficit. Its full pension obligations are costing the postal group more than £750 million a year.

The Government is already effectively responsible for the pension because Royal Mail is fully state-owned at the moment. But the Conservatives have attacked the expected move as an “accounting fraud”. Alan Duncan, the Shadow Business Secretary, said: “I fear the Government is going to steal £22 billion of pension assets, dump the liability as a mortgage on future generations and dress it up as the salvation of Royal Mail.”

The Hooper report is also likely to recommend the closure of more mail sorting offices in a move to make the organisation more efficient. Royal Mail is already implementing a programme of some closures which has inflamed the CWU. Workers at several centres are about to strike this Friday in a move that will have serious implications for the Christmas post.

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