The Government has rejected a proposal from Royal Mail management that 20% of its shares in the company be distributed to employees as part of its UK investment in the operation.

Allan Leighton, chairman of Royal Mail, tried for several months to persuade the Government to accept the scheme – worth about £5,000 to each worker – but Trade and Industry secretary Alistair Darling continued to reject it.

Leighton’s idea is that the workers receive ‘phantom shares’ that act like normal shares, but have no ownership rights over the company. This would increase the workers’ perception of their saving and investment stake in the company and allow them to benefit from increases in value.

Darling said: “The 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 Royal Mail, it is only right that there should be some reward for employees.”

At the same time, a Royal Mail spokesperson said that a new scheme being agreed with the Government would still be worth £5,000 per worker and would represent a good UK investment for the country.

But Darling had some deep reservations about Royal Mail. “The Royal Mail has got to make some pretty fundamental changes to the way it works,” he said.