MINISTERS are set to back Royal Mail’s plans for employee share ownership next week in a move that will trigger a showdown with Labour backbenchers and unions who have condemned the scheme as a partprivatisation of the service.

The Times has learnt that Gordon Brown, the Chancellor, and Alistair Darling, the Trade and Industry Secretary, are preparing to endorse the controversial plan as they sanction up to £2 billion in state cash for the organisation next Thursday when Royal Mail reports profits of more than £600 million.

Royal Mail will also prepare the ground for employee share ownership early in the week when it will announce the number of responses to a letter to the 180,000 staff from Allan Leighton, the chairman, asking them if they want free shares. Royal Mail executives are confident that they have a strong number of registrations for shares and may release the number on Monday.

However, the battle for political and union acceptance for the plan will only just have begun, as employee share ownership needs primary legislation and 199 Labour MPs have signed a Commons motion opposing the move. The plan to restructure Royal Mail will trigger an angry response from the Communication Workers Union (CWU), which holds its annual conference the following week. Some factions of the union want to cut Labour’s funding if it proceeds with privatisation of any sort.

But the Government and Royal Mail will defend the share plan by insisting that full-scale privatisation is not on the agenda. Their opponents, however, will point to other cases where this has happened, such as the state-owned telecoms business in Ireland where a gift of shares to employees preceded a full sale.

Royal Mail’s private sector rivals are also expected to round on the Government’s move and press the European Commission to take action. Competitors already complain that Royal Mail benefits from favourable treatment such as exemption from VAT.

The granting of state cash, which will come in a variety of forms, comes after prolonged lobbying by the postal group, which argues that it needs the money for new equipment and to deal with a £4.5 billion pension deficit.

The Government ruled out direct help for the pension fund because of fears that this would infringe curbs on state aid. However, it has received satisfactory financial advice on a rights issue that will involve it taking more shares than it already has in return for releasing the money for specific investment.

At the same time Royal Mail and the unions are still fighting over Royal Mail’s imposition of a rejected pay rise and its banning of the union from conducting a ballot on the future of Royal Mail in the workplace.

The CWU annual conference is certain to hear calls for industrial action against Royal Mail, which could herald postal disruption throughout the country.

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