Cable unveils £1.3bn bonus for Post Office network

The money, which will be made available over the next four years, would be used to reverse years of decline in the network, Business Secretary Vince Cable said.

But unions warned the extra funding could be wasted if the Royal Mail was separated from the Post Office under the coalition's plan and Labour said privatisation was not in the "national interest".

The Postal Services Bill was given a second reading by 321 votes to 238, Government majority 83.

Mr Cable said the 1.34bn over the course of the spending review "will be used to reform the current network, to change the underlying economics and so reverse the years of decline and secure its long-term future".

He added: "There will be no programme of closures under this Government and the Post Office will be able to invest, improve its offer and win new revenue streams."

The Government was looking at options for a cooperative structure for the Post Office network, which had around 11,500 branches across the UK.

However, "no firm decision" had been taken on possible mutualisation but the Government had asked Co-operative UK to look at the options.

Under the Bill, private and potentially overseas buyers will be allowed to own up to 90 per cent of the Royal Mail, with at least 10 per cent of shares going to employees.

Mr Cable said the Royal Mail was facing "structural decline" with a huge fall in letter volumes and stiff commercial pressures.

He said: "The Royal Mail has now proportionately the largest pension deficit of any major company in the UK, it loses almost 1m a day on its trading activity, it is an inefficient business in a market that is declining faster than anyone predicted."

Mr Cable added: "The Government is the wrong shareholder for this company.

"Given the Government's financial constraints we cannot invest enough, quickly enough, we can't invest flexibly enough and every investment we now make has to be cleared by the European Commission under state aid rules."

The proposals build on Richard Hooper's review of the postal service commissioned under Labour but go further than the part-privatisation proposed by Labour former business secretary Lord Mandelson.

But Mr Cable said he would not set an "arbitrary target" for the timing of the sale of Royal Mail shares.