UK Postcomm ‘minded to’ accept Royal Mail’s revised proposals to restructure its prices

After extensive consultation and following detailed discussions with Royal Mail, Postcomm said today (5 April 2005) that it is minded to accept recently announced revised proposals from Royal Mail to price letters and packets according to their size, as well as their weight, as from April 2006. However, Postcomm is consulting interested parties before making a final decision, both on the proposals and on the notice period before their introduction.

At the moment letters and packets are priced purely according to their weight, but Royal Mail says it costs it more to sort, handle and deliver big envelopes and packets. This means that light but bulky items are priced below cost, whereas heavy items are generally overpriced. Royal Mail wants to change its prices to more accurately reflect its costs.

“With full competition in postal services starting next January, it is essential for all parties that Royal Mail's prices align with its costs,” said Nigel Stapleton, chairman of Postcomm. “Some of its current prices are a carry-over from its days as a national monopoly when cost reflective pricing was less important. To allow this to continue would unbalance a fully competitive market.

“A notice period of 12 months from now would seem to strike a reasonable balance between the need to give users time to adapt, while at the same time providing certainty for the market, including those businesses whose postage costs will reduce as a result of the new prices,” Mr Stapleton said.

“I am pleased that Royal Mail has taken on board so many of the points raised following our earlier consultation. After extensive discussions, in which we have tested its revised price proposals, we are now satisfied that they are cost reflective. Any changes must also be revenue neutral.”

Postcomm's first consultation, in April 2004, drew around 10,000 responses.

Notes

If confirmed, the changes would enable Royal Mail to charge more for light but large mail such as very large greetings cards, rolls of photographic film and video tapes, but some heavier items — catalogues and books for example — would cost less. Any price rises would need to be balanced by reductions elsewhere, to make the price restructuring revenue neutral overall.

The main changes to Royal Mail's original proposals are an increase in the maximum thickness of Large Letters from 10mm to 25mm for mail delivered by postmen, and a maximum thickness of 35mm for reply-paid mail. Royal Mail has also increased the number of weight steps for Large Letters and Packets.

Under the new proposals:
A Letter is a mail item that would fit into an envelope no larger than 165mm x 240mm (approx 6½in x 9½in) and not more than 5mm (approx. 3/16 in) thick. This includes most A5 sized items.

A Large Letter is a mail item that would fit into an envelope no larger than 250mm x 353mm (approx 9¾in x 14 in) and not more than 25 mm (approx. 1 in) thick. This includes most A4 sized items.

A Packet is mail that either measures more than 250mm x 353mm or is thicker than 25mm.

Because the changes must be revenue neutral, price increases for large lightweight items are offset by reductions elsewhere. From 7 April 2005 a first class letter weighing between 60 and 100 grams will need a 46p stamp. Under the proposal, Royal Mail wants to extend the weight limit for Letters from 60g to 100g, providing the items conform to the maximum size and thickness limits – and their price would require only a 30p stamp.

Royal Mail says that the price of 70% of mail would be unaffected by the changes, and the price of a basic 1st or 2nd class letter would be unchanged by the proposals.

However, as well as winners there will be some losers under the new proposals. A large greetings card weighing less than 60 grams, which from 7 April will cost 30p to send first class, would cost 42p, and first class postage on a 100 gram packet would rise from 46p to 94p.

If Postcomm confirms its position following consultation it will require Royal Mail to mount a significant national awareness campaign to ensure customers know about the changes.

Research commissioned by Postwatch showed that a large majority of both residential users (85%) and businesses (72%) were of the view that “one year or less” would be a sufficient notice period from the announcement of the proposed changes. In addition, a majority of both residential users (73%) and businesses (55%) were of the view that about “six months or less” would be long enough.

The consultation document: "Royal Mail’s revised proposals for Size Based Pricing (‘Pricing in Proportion’)" is published on Postcomm's website www.psc.gov.uk. Printed copies will shortly be available from Postcomm at 6 Hercules Road, London SE1 7DB. Responses are requested by 5 July 2005. The earliest Postcomm will issue a decision statement is later that month. If this were the case and the changes were introduced from April 2006, this would give customers at least 8 months’ notice from a formal decision.