The Liberal Democrats today inflicted a major defeat on Charles Kennedy and the modernisers in his frontbench team by refusing to endorse their flagship plan to privatise Royal Mail.

One opponent accused the leadership of trying to foist unsellable, "back-of-a-fag-packet" policies on the membership. The rejection leaves efforts to reform Lib Dem policy in a shambles, and raises questions about the sureness of Mr Kennedy's grip on his party.

There was a heated debate over the scheme, which entails selling off two thirds of Royal Mail, raising around £3 billion to invest in the faltering business and to pay off part of its £2.5 billion pension deficit.

Shares in the remaining one third would be placed in trust for the benefit of its employees, to give workers a stake in the company, like the John Lewis partnership, while Post Office Ltd would stay in the public sector.

The debate is occurring at a crucial time for Royal Mail, which in three months' time will be exposed to the full rigour of the market, when the right to deliver post will be opened up to the private sector.

Norman Lamb, the Trade and Industry spokesman who devised the scheme, said that Royal Mail had been starved of investment by successive governments, and with its poor record on industrial relations was not in good shape to compete. He pleaded with delegates to endorse his scheme, which he said was fully costed and had the tacit approval of Postwatch and of the regulator Postcom.

It has also been backed by Lib Dem MPs and explicitly supported by Mr Kennedy. "Time is not on our side," he said. "Full liberalisation takes place in just over three months' time. As a spokesman, I need to be able to go out and say what the Liberal Democrats believe in. Just think how ridiculous we would look if we go back to think about this for another year."

But Lord Greaves of Pendle, an opponent of the plan, accused Mr Lamb of dreaming up a half-baked scheme to "sell off Postman Pat in order to save Mrs Goggins". He said: "The motion in my view classifies as being the kind of back-of-a-fag-packet stuff that we have been warned against in this party. I believe it would be electorally disastrous to adopt it now."

Councillor Paula Keaveney accused the party leadership of throwing grassroots members to the wolves by trying to saddle them with policies that were indefensible on the doorstep. "They would be accused of selling off the Post Office, which would cut the ground from under them," she said. It was the taxpayer who ought to pay to reopen closed sub post offices and invest in the business, she added.

Members voted to kick the plan into the long grass, by referring it back to the party's federal policy committee for further discussion before debating it again at next year's party conference. The row descended further into acrimony when Lord Greaves interrupted Mr Lamb as he briefed journalists outside.

Senior party figures including Sir Menzies Campbell, the deputy leader, and Vince Cable, the Treasury spokesman, clustered round Mr Lamb afterwards and patted him on the back in consolation. Mr Kennedy was however nowhere to be seen.

In a briefing later, Mr Lamb sought to put a brave face on events, refusing to link today's defeat to yesterday's rebellion against the leadership's line on Europe. He said he did not think that members were trying to send a general message that they were unhappy with Mr Kennedy, and he disagreed that Mr Kennedy had failed to support him by not appearing at the debate.

Earlier, Mr Kennedy appeared to be bracing for defeat over Royal Mail when he spoke to Times Online about the importance of the vote. He said: "I think it is very important to get the temperature of the conference in these matters. We are at the beginning of this process of reconsidering our position and updating our policies, based on long-standing Liberal principles and values.

"We need to be looking at the issues of the day. This is a good example of taking an issue of the day and applying our principles and values to it. I don't therefore think that the (outcome) of debate we are going to hear is one that we should view in one way or another. The quality of the debate is what is most important to see."

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