UK stamps to cost more as price curbs relaxed

The price of a first-class stamp is set to rise from 30p to at least 36p by 2010, after Royal Mail’s regulator yesterday significantly relaxed proposed price controls for the next four years. The move follows a prolonged battle between the state-owned postal operator and the regulator over prices in the run-up to full competition in the market at the start of next month.

Postcomm conceded yesterday that “obviously the headline could signal we’ve caved in a lot”. In June, the regulator proposed capping Royal Mail’s regulated prices at 2.5 per cent below inflation. Following intense lobbying by Royal Mail – which warned the curbs would send it into a spiral of decline and possible collapse – Postcomm’s final price controls equate to a limit of only 0.1 per cent below inflation.

Nigel Stapleton, the regulator’s chairman, admitted: “Consumers could look at this and say: ‘They’ve started out tough and now gone extremely weak’.” But he insisted the changes were driven by information that emerged during the consultation, rather than any pressure from Royal Mail or its sole shareholder, the government.

A sharp increase in Royal Mail’s pensions deficit, a fall in mail volumes and higher than expected cost figures had all forced Postcomm to revise its initial figures, Mr Stapleton said.

The final controls allow Royal Mail to front-load some of the price increases – sending first-class stamps from 30p to 32p next year – to reduce the pensions deficit. The regulator has agreed to increase the amount the operator can invest in upgrading antiquated equipment, such as sorting machines, from Pounds 750m to Pounds 1.2bn, compared with the Pounds 2bn Royal Mail wanted.

In contrast to the initial proposals, the final controls allow prices to be increased automatically if Royal Mail’s Pounds 21bn pensions liabilities increase by more than Pounds 2bn, with a 10th of this additional increase loaded on annual price increases. A drop in mail volumes of more than 2 per cent will also trigger price adjustments, although Mr Stapleton insisted the chances of this affecting stamp prices were “next to nothing”.

Royal Mail said the regulator had “moved a long way from its initial stance” but insisted the new controls were still “tough”. The final controls are out for consultation for the next three months and the operator has the option of appealing to the Competition Commission. But Royal Mail’s main focus is likely to switch to the government, as it looks for further funding to cope with the impact of full competition.

Adam Crozier, Royal Mail’s chief executive, said: “Now we know broadly what the regulator is proposing, we’ll be talking to our shareholder about the future financing of the company and of the investments we need to make.”