LONDON (Reuters) - The government set out plans to fully privatise postal delivery company Royal Mail, saying on Friday it was essential to attract private capital to ensure the service’s survival.

Postal workers return to a delivery office in west London September 10, 2010. REUTERS/Toby Melville

The commitment, which risks a confrontation with unions opposed to a selloff, follows an updated independent review of the sector by former regulator Richard Hooper, who said Royal Mail should be sold to a trade investor or floated off.

Hooper noted a cash-strapped government could find it hard to provide the necessary investment.

“He (Hooper) paints a very clear picture,” Business Secretary Vince Cable said in a statement. “Royal Mail is facing a combination of potentially lethal challenges -- falling mail volumes, low investment, not enough efficiency and a dire pension position.”

Cable later set out details of the plan.

“We’re not proposing to keep a government stake,” Cable told the BBC, saying workers would be given a chance to buy shares in the privatised company. He hoped the legislation would be approved by parliament over the winter.

The Conservative-Liberal Democrat alliance which took office in May included a sell-off as part of its coalition agreement but had not specified how much of Royal Mail it would sell.

Slideshow ( 2 images )

The network of post offices offering retail services would remain in government hands.

Billy Hayes, general secretary of the Communications Workers Union, denounced the plan for an organisation that employs around 155,000 people.

FAILED POLITICS

“Privatisation is old politics. It’s the failed politics of history, which brought disruption to Britain’s utilities and railways and astronomical prices for consumers,” Hayes said. “Privatisation would be devastating for Royal Mail and the whole country’s postal services.”

In his report Hooper said letter volumes were likely to fall by up to 40 percent over the next five years because of increased use of e-mail and texting. He also said Royal Mail’s accounting pension deficit had increased to 8 billion pounds as of March this year.

The government plans to take over that liability when it sells Royal Mail off.

The mail service has faced increasing pressure from competitors such as UK Mail and TNT, which deliver parcels and packages. However, Royal Mail retains an effective monopoly over delivering mail over the “final mile” to homes from sorting offices.

TNT was seen as a potential purchaser under previous plans to sell Royal Mail, but the head of TNT’s UK operation suggested it was not likely to be revive its interest this time.

“We’ve got other priorities and are focussing on implementing our own strategy and vision,” Nick Wells, CEO of TNT Post UK, told Reuters.

The previous Labour government had planned to sell off up to 30 percent of Royal Mail but shelved the plan last year, citing market conditions. Strong union opposition had also been seen as a factor in the decision.

Private equity group CVC Capital Partners was reported to have offered just under 2 billion pounds for the 30 percent stake last year.