The Government has ruled out giving shares in the Royal Mail to postal workers in a big rebuff to the company's leadership.
Trade and Industry Secretary Alistair Darling told MPs he could not agree to an employee share ownership scheme which could have been worth around £5,000 to each worker.
The Communication Workers Union had described the plan as "back door privatisation" and warned of industrial action if it went ahead.
Royal Mail chairman Allan Leighton promoted the share ownership scheme last year and spent several months trying to persuade the Government to support the plan. But Mr Darling told the Trade and Industry Select Committee of his concerns once he had studied the details.
Mr Darling told the committee there would be an upfront cost with the plan to give 20% of the business in shares to workers. The move would affect around 200,000 employees and would also hit public finances, he said.
The minister added that there would have to be primary legislation for the scheme to go ahead, which would have taken at least 18 months.
Mr Darling revealed that his officials and the Royal Mail were now working on another plan for workers to benefit from the increased value of the company.
"Those discussions are at a fairly advanced stage. We have decided not to go down the road of an employee share ownership scheme, but we want a scheme that will bring equivalent benefit.
"Given the scale of the challenges in front of the Royal Mail, it is only right there should be some reward for employees."
Committee chairman Peter Luff (Conservative, Mid Worcestershire) said that if the Government was looking at a "profit share with knobs on" that was likely to be more acceptable to MPs.
