Britain's second largest postal firm TNT Post is to trial deliveries on the streets of west London next month as it steps up ambitions to rival state-owned Royal Mail Group as the UK's postal provider.

TNT Post UK, which is owned by Dutch mail company PostNL NV and handles more than 300 million items a month in the UK, will run test deliveries to homes and businesses in the capital from mid-April after a successful tryout in Liverpool.

The firm currently collects and sorts post before handing it over to Royal Mail to deliver what is known as the 'final mile' to residential addresses and businesses.

TNT Post UK wants to provide this service itself but before its orange and black clad postal workers hit the streets permanently it is fighting to get a Royal Mail VAT exemption on the final mile removed first. Any other company wanting to offer a delivery service is subject to VAT.

We want to make a significant investment in infrastructure and create thousands of jobs in the UK but the government is doing little to help us to do this, TNT Post UK Chief Executive Nick Wells said in a statement on Thursday.

In a separate interview with Reuters on Thursday, TNT Post's owner said it would look to invest 300 million euros, raised from the 1.5 billion euros sale of its stake in TNT Express to United Parcel Service, in operations outside of the Netherlands.

Asked if some of the cash might be heading to Britain, a spokesperson for TNT Post UK told Reuters that it wasn't in a position to comment on future investment plans.

UNIVERSAL SERVICE

Royal Mail, which on Wednesday moved a step closer to being privatised after EU regulators approved government plans to free the company of its deficit-ridden pension scheme, said potential rival operators would disadvantage customers.

In a statement it said that unrestricted development of rival end-to-end services would undermine the Universal Service agreement it works to, which ensures that UK consumers get a universally-priced, affordable postal service, six days a week.

The Universal Service is the bedrock of the postal system. It benefits every user of the post, whether they post a small number of birthday and Christmas cards or they are a large business posting millions of letters, Royal Mail said.

If a rival service cherry picks profitable, easy-to-deliver mail, it will weaken and ultimately undermine the Universal Service that only Royal Mail currently has the ability and commitment to deliver to the UK's 29 million addresses.

Postal regulator Ofcom has said that it will assess on a case-by-case basis any interest in providing so-called 'end-to-end competition' in the UK, where a postal operator receives the letters and delivers to an address without using Royal Mail's network.

In October, Ofcom proposed letting Royal Mail set prices for the majority of its products in a bid to help it sustain its services levels amid declining mail volumes and operating losses at its letters and parcels unit, which stretched to 41 million pounds in the six months to September 25.

A decision on these proposals in expected in the spring.

TNT Post UK, which processes around 17 percent of mail in Britain, also said on Thursday that it had signed an agreement with Tesco to handle up to 180 million items a year for the world's third-biggest retailer. A value for the deal was not given.

(Editing by Matt Scuffham and David Cowell)