Postal workers are braced for a bitter battle with the Government after it decided to press ahead with controversial privatisation plans.
The decision came after a report warned that "urgent action" was needed to protect the Royal Mail.
Controversy over ownership of the Royal Mail erupted when an updated version of a study - originally ordered by the Labour government - called for private investment.
Richard Hooper said the Royal Mail's financial position had worsened since his earlier report, warning that the group's £10 billion pension deficit was more unsustainable. He called for an injection of private capital into the business, arguing that it would fund increased modernisation of the postal service.
Business Secretary Vince Cable said the report painted a "very clear picture" of the way forward as he announced that legislation will be unveiled in the autumn.
The Communication Workers Union described privatisation as "old politics" and voiced fears that the Government was plotting to "seize" pension assets it said were worth £26 billion. The union, which held a series of strikes last year in a row over modernisation, has not ruled out fresh industrial action as it mounts another campaign to keep the Royal Mail wholly publicly owned.
Mr Hooper said that since his last report in December 2008, underlying issues which threatened the universal postal service remained, so that urgent action had to be taken. His report said the decline in the number of letters being sent was greater than forecast in the 2008 report and would continue to deepen, with worldwide falls in the next five years of between 25% and 40% likely.
The continued growth in parcels, a result of internet shopping, will not make up for the decline, he warned.
Despite important steps forward on modernisation, Royal Mail still lagged well behind the leading postal operators, according to the report.
It recommended a new, less burdensome regulatory framework, with responsibility for regulation moving from Postcomm to Ofcom and said the pension deficit should be taken over by the Government as part of the wider range of measures. It said private sector capital must be introduced into Royal Mail in the form of sale to a partner/trade investor or offering shares.