UK Royal Mail argues for 48p stamp, saying letters are a drain

Royal Mail lost more than £200m last year on post that weighed under 100g, the company’s regulatory accounts showed yesterday. This is the category of mail that is regulated by the government-appointed regulator, Postcomm, and represents the organisation’s monopoly area, which is about to be removed completely.
Chairman Allan Leighton said that the figures illustrated Royal Mail’s problem. “Ninety percent of what we do loses money” he said.
Mr Leighton is fighting a Postcomm price control proposal that would cap first and second class stamps at a level he says is unsustainable. He said yesterday that the prices need rebalancing, because customers sending heavy parcels are subsidising lighter mail.
Royal Mail argues that it will not be able to compete with rivals unless this imbalance is removed. In a recent report to ministers it said that Postcomm’s proposals could lead to a further 40,000 job cuts – a quarter of the workforce. That is more than the envisaged 34,000 job cuts under Mr Leighton’s plan to return Royal Mail to sustainable profitability.
Mr Leighton said that Royal Mail was making a 5p loss on every first-class stamped item posted and an 8p loss on every second-class stamp. Postcomm has said that Royal Mail can increase first-class stamp prices to 34p over the next four years. Royal Mail has argued that the ideal price would be 48p. The organisation is arguing that it needs to raise money for investment as it will face competition in all of its markets from next January.
The regulatory accounts state that Royal Mail made a £212m loss on its 0-100g products and a £112m profit on mail weighing between 100g and 350g. The unlicensed 350g plus products were most profitable, making a £527m profit.
The organisation is hoping to bring in a new way of pricing postal products that was originally called “size-based pricing” but has been renamed “pricing in proportion”. This means that customers are charged on the size of the packets they post rather than by their weight, which Royal Mail says is more representative of the actual cost of postage. Although this has provoked opposition, notably from greeting card manufacturers who say it will stifle innovation, Postcomm has said it is minded to approve it.
The Royal Mail regulatory accounts say that the recent pricing proposals from Postcomm raise “considerable concerns for the future of the USO”, which stands for Universal Service Obligation, or a service that goes all over Britain for one uniform price.
“These proposals not only significantly understate the level of the profits that it will be allowed to earn but do not allow the necessary investment which is required to further improve and allow Royal Mail to compete on a level playing field,” the accounts state.