Royal Mail’s pension deficit has soared 25 per cent to £4 billion and is likely to jump further after an actuarial review next March.

However, half-year operating profits of the state-owned organisation more than doubled to £177 million, only six months after it said it would need a big cash injection because of a declining market and increased pension costs.

In the six months to the end of September, postal volumes fell 4 per cent, leaving the daily postbag at 79 million items, a drop of five million on two years ago.

Referring to its pension deficit yesterday, Royal Mail said that there was “an urgent need to tackle this major challenge”. The postal group is hoping for help from the Government, although it had a large injection for pension servicing as part of a £3.9 billion rescue package last year.

Lord Mandelson, the Business Secretary, this week told MPs that he is considering extending the terms of the Hooper review, which is looking at the challenges facing Royal Mail and his recent remarks have revived talk of a part privatisation.

Yesterday, Royal Mail said: “We face additional risk from the squeeze in the UK economy and from the drive by both businesses and individuals to cut their costs. Royal Mail is particularly vulnerable to a downturn in the advertising market.”

Much of the improvement in the group’s letters division and its Post Office counter network has come from a reduction in overheads and changes to working practices.

Adam Crozier, the chief executive, said that Royal Mail’s universal service obligation — its duty to send non-bulk domestic and business mail anywhere at a flat rate — was loss-making. He said that although there had been “huge effort” across the organisation to improve profitability, “we are also facing huge pressures, with the universal postal service still loss-making, competition intensifying still further both from electronic communications and rival operators, and the increasingly heavy costs of servicing the historic pension deficit”.

Royal Mail’s letters operation recorded operating profits of £46 million for the first half of its financial year, compared with a £5 million profit for the same period last year.

Its Post Office division moved to a £28 million profit, from a £7 million loss. Royal Mail this year has been closing 2,500 post offices, leaving a network of just over 11,500. It said the programme was nearing completion.

Royal Mail said that the future of the Post Office Card Account, the Government’s no-frills banking service, was of critical importance. The Department for Work and Pensions has yet to decide whether the Post Office will retain the business or whether it will go to a rival operator. It is feared that if the Post Office does not get a renewed contract, thousands more post offices could close.

Billy Hayes, the Communication Workers Union general secretary, said: “The results demonstrate that Royal Mail can make a profit while remaining a public service.

“We expect the Government to ensure that such good results are supported by retaining Royal Mail as an integrated and wholly publicly owned service.”

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