UK Royal Mail anger over plan for price cap on stamps

The Royal Mail reacted angrily last night to new proposals that would cap its ability to raise stamp prices by more than 4p over the next five years, warning that the plans would lead to the group’s ‘inexorable decline’.

The proposals, in a new consultation document published today by the independent postal regulator, Postcomm, also includes plans to penalise Royal Mail heavily for missing performance targets. The regulator said its plans could see the group fined as much as pounds 280m in a year if it missed the targets by more than 5 per cent.

First class stamps would not be able to rise more than 4p over the next five years, while second class stamps would be permitted to rise just 2p. Group profits would also be capped, at around pounds 285m a year.

The UK postal market will be opened up to competition for the first time next year. Royal Mail said that Postcomm’s proposals would threaten its ability to charge one price for all UK deliveries, and would halve its profits.

Allan Leighton, Royal Mail’s chairman, said: ‘These proposals will literally starve Royal Mail of vital investment and so wreck the quality of service we have fought so hard to improve. We cannot accept them. These proposals are a kick in the teeth for our people. They destroy the hard-won gains on quality of service and push Royal Mail into a spiral of decline.’

Although Postcomm admitted the new price caps were ‘challenging’, it added they were also ‘achievable’. Nigel Stapleton, the chairman of Postcomm said: ‘These proposals offer customers a better deal and secure the universal service. Our proposals seek to strike an appropriate balance between Royal Mail’s regulatory freedom in a newly liberalised market and the interests of mail customers and rival postal operators. This is good news for domestic customers.’