GOVERNMENT departments are being told to stop sending letters via the Royal Mail because it does not offer the same value for money as its rivals, despite its huge subsidies.

The Government wants to cut £30 million from the cost of delivering post and is urging departments and councils to consider using one of the eight private-sector suppliers.

The news comes two weeks after the Royal Mail said the Government had given it £1.75 billion in emergency help to plug its pension fund deficit and pay for modernisation.

The pressure to abandon the Royal Mail is coming from the Office of Government Commerce (OGC), which negotiates business deals on behalf of Whitehall.

The man responsible for negotiating with the Royal Mail has told the Treasury Select Committee that the discussions had been “not as fruitful as I would have liked”. Hugh Barrett, the chief executive of OGCbuying.solutions, said: “It is a commercial decision for the Royal Mail to make as to how far they want to lower their prices in response to competition. That is established policy. We are taking advantage of the deregulated market to get the very best deal for taxpayers in that marketplace.”

He added: “More business will probably move away from the Royal Mail as a result.”

MPs said yesterday that it was ludicrous for the Government to insist on using private-sector companies when the rural post office network was facing collapse.

The Royal Mail lost its monopoly on mailings of 4,000 or more items in April 2003.

From January 1, the rest of the £6.5 billion market was opened up to competition. Any company can now deliver to any address — although only the Royal Mail has an obligation to deliver to every address in Britain.

The public sector spends almost £650 million a year on post, 10 per cent of the total mail market. About £250 million of this is by central government, with the Department for Work and Pensions and HM Revenue and Customs responsible for more than half.

The commercial rivals are UK Mail, DHL, Special Mail Services, Lynx, The Mailing House, DX and TNT, formerly the Dutch state postal service.

Since September, the Department for Work and Pensions — once one of the Royal Mail’s biggest government clients — has been using UK Mail and TNT Mail for its second-class post, saving £53,000 on the cost of sending 3.2 million items.

John Thurso, a Liberal Democrat member of the Treasury select committee, said: “Does it not seem like an obvious thing for the left hand to work out what the right hand is doing and where the costs are?”

A spokesman for the OGC said: “We’re saying that alternatives are there depending on what your needs are. There are different companies offering different services. The Royal Mail is one of the accredited suppliers.”

A spokesman for the Royal Mail said: “We’ve got to be sure that we’re delivering a service that is high quality and meets the need of the customer and is competitively priced. It’s not for us to say to any customer that you must use us.”

Times Recommends

• Time-worn Freddie gives up Test matches
• Brighton company 'involved in cyber attack'
• The art of survival: it’s all in the mind