Royal Mail has unveiled a 30% rise in the price of a first-class stamp to boost revenues aftergaining greater pricing freedoms under Britain’s new ‘light touch’ regulatory system, prompting
protests from business and consumer groups.The UK’s national postal operator announced yesterday that from April 30, the price of a FirstClass stamp for a standard letter will rise from 46p to 60p, and the price of a Second Class stampfor a standard letter will increase from 36p to 50p. It will also introduce a flat price for smallpackages (up to 750g), with First Class packets costing £2.70 and Second Class packets £2.20.
CEO Moya Greene said: “We know how hard it is for households and businesses when our economy isas tough as it is now. No-one likes to raise prices in the current economic climate but,regretfully, we have no option. Royal Mail provides one of the highest quality postal services inEurope for amongst the lowest prices for both consumers and business. That service is under threatfrom declining volume, e-substitution and ever increasing competition. Because of these pressuresRoyal Mail has lost £1 billion over the last four years; the sustainability of the service is nowat risk. Price increases are needed to return the Universal Service to sustainability.”
Royal Mail said the significant deterioration in its finances can be attributed to a number offactors. Firstly, the previous regulatory regime kept prices artificially low. Secondly, mailvolumes fell by 25% in six years and volumes are expected to decline by about 5% a year for theforeseeable future. Thirdly, less mail is being delivered to more addresses. The number ofaddresses has increased from 27 million in 2003 to 29 million today. Moreover, Royal Mail deliverssix days a week while many EU countries only provide a five day delivery service.
Warning that the USO was at risk due to the switch to electronic communications, Ofcom, the UKregulator for the communications industries, presented new regulatory measures for the next sevenyears, giving Royal Mail more freedom to set prices for most of its products. In addition, RoyalMail gained the freedom to set the ‘wholesale price’ for competitor access to its delivery network,although this would be subject to rules regarding the margin between its wholesale and retailprices. Ofcom said it would also assess on a case-by-case basis any proposal to provide ‘end-to-endcompetition’ in the UK, where a postal operator collects and delivers letters without using RoyalMail’s network.
Stuart McIntosh, Ofcom’s Group Director of Competition, said: “Ofcom’s decisions are designed tosafeguard the UK’s postal service, ensuring it is sustainable, affordable and high-quality, to theend of the decade and beyond. The measures ensure that Royal Mail’s products remain affordable forvulnerable consumers and small businesses.”
The new prices got a mixed response from consumers and business groups. The Direct MarketingAssociation (DMA) said it was “dismayed” that Royal Mail could now set its own prices. Mike Lordan,DMA chief of operations, said: “Royal Mail now has the freedom to change, prices and terms andconditions without any statutory notice requirement. Commercial users now have little in the way ofpower to dispute any changes that affect their business. We hope that Royal Mail uses its newcommercial freedom responsibly by consulting and listening to its customer before it implements anychanges. Otherwise, granting Royal Mail the ability to raise its prices without consultation willdrive more and more businesses away from mail to cheaper alternatives, which is concerning as mailvolumes are already declining year on year.”
Robert Hammond, Director of Postal Policy and Regulation at Consumer Focus, said: “This is notgreat news for consumers. I doubt anyone is going to think about the challenges facing Royal Mailwhen they are paying 60p for a first class stamp. Unfortunately, the economics of Royal Mail meantthat something had to give to maintain the Universal Service Obligation (USO). This is a verysignificant increase in the price of an essential service and those consumers who continue to useit will look much harder at the value for money and quality of service that they get.”
He added: “We are pleased that Ofcom has taken on board our advice and evidence about having aprice cap on all second-class letters, packets and parcels. This should help soften the blow ofstamp price rises for vulnerable consumers and small businesses and we welcome the furtherconsultation on where this extended cap should be set.”
The Communication Workers Union, the main UK postal union, said the price increase was “theinevitable result of competition” and of the effect that privatisation has on public services.Billy Hayes, CWU general secretary, said: “Today’s announcement from Ofcom is the naturalprogression towards full competition and privatisation of postal services where customers pay moreand efficiencies are sought in the interests of profit, not services. Commercial freedoms may begood for the company but it could come at the cost of affordability and access to services formany. Price rises are the inevitable result of competition.”
Meanwhile, the European Commission today approved UK plans to grant a £1155 million (around€1,383 million) network subsidy to the UK Post Office Ltd aiming to keep open and modernisenon-commercially viable offices.
The Commission said it found the measure to be in line with EU state aid rules, in particularbecause the aid does not exceed the net cost for providing the public service mission entrusted tothe Post Office Ltd. The Commission also endorsed the continuation, under stricter conditions, of aworking capital facility of up to £1150 million (around €1377 million) which will provide the PostOffice Ltd with sufficient liquidity to carry out its public service obligations. The Commissionconcluded that this liquidity facility is provided on market terms and therefore does notconstitute state aid within the meaning of EU rules.
Commission Vice President in charge of competition policy Joaquín Almunia said: “The networksubsidy will enable the UK post office network to continue performing its fundamental social andeconomic role by delivering essential public services to UK citizens in remote and rural areaswithout unduly distorting competition”.
