Business Secretary Vince Cable confirmed the sell-off after receiving recommendations from Richard Hooper, the former deputy chairman of broadcast regulator Ofcom.
The Hooper Report says an injection of private capital is needed to address the mail group’s worsening financial situation and the unsustainable £10bn pension deficit.
Hooper recommended private investment in a 2008 report for the then Labour government. However, plans to part-privatise the service were shelved last year by Peter Mandelson because of a lack of credible bidders.
Cable says: “He [Hooper] paints a very clear picture – Royal Mail is facing a combination of potentially lethal challenges – falling mail volumes, low investment, not enough efficiency and a dire pension position.
“We are determined to safeguard Royal Mail for the future and help it tackle these challenges.”
He adds that new legislation will be introduced later this year which will “draw heavily on Hooper’s analysis and recommendations and the Government’s wider objectives”.
The Government also wants Royal Mail employees to have a stake in the restructured business.
Billy Hayes, general secretary of postal workers’ union CWU, says privatisation would lead to higher prices for customers and job losses.
Privatisation will be led internally by chief executive Moya Greene, who joined in July from Canada Post.