Postcomm admits ‘cave in’ over UK Royal Mail price deal

Postcomm has bowed to pressure from Royal Mail over its price control proposals, admitting that the revised price regime “could signal we’ve caved in”.

The new proposals have sparked a backlash from watchdog Postwatch, which claims they are over generous to Royal Mail. The postal operator refutes this, claiming the proposals are still ‘tough’.

The regulator had originally proposed capping Royal Mail’s prices at 2.5 per cent below inflation (PM September 9), but Royal Mail has managed to convince Postcomm to give it a limit of only 0.1 per cent below inflation.

The maximum cost of a first-class stamp will now be 36p (a 20 per cent increase). It can also put up the price of products that are open to competition by 0.6 per cent, and the price of products without effective competition by 5.5 per cent.

It allows Royal Mail to increase prices by 6.2 per cent to help meet the cost of its pension deficit and invest GBP1.2bn in equipment and technology. Annual efficiencies are set at 3 per cent, and it values the regulatory business at GBP2.3bn. Postcomm chairman Nigel Stapleton admits: “Consumers could look at this and say: They’ve started out tough and now gone extremely weak.” But he insists the changes have been made after consultation, and not Royal Mail pressure.

The proposals will be implemented in April 2006 if Royal Mail gives the go-ahead.

Royal Mail chief executive Adam Crozier says: “No one should regard today’s proposal as anything other than tough – particularly for a business with challenges on the scale that Royal Mail faces.”

But Millie Banerjee, chair of Postwatch, comments: “This is well in excess of inflation.”

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