Royal Mail: We have to carefully balance our pricing against a continued decline in letter volumes

Royal Mail has announced that from 3 April 2023, the price of a First Class stamp will increase by 15p to £1.10p, and the price of a Second Class stamp will increase by 7p to 75p to ensure the one-price-goes-anywhere Universal Service remains sustainable.

These changes have been subject to careful consideration by Royal Mail in light of the 25% drop in letter volumes since the pandemic, increasing costs and the highest inflation rates for a generation.

Royal Mail’s First Class stamp prices remain competitive compared to other major European postal operators. Across Europe, the median price for the equivalent of a First Class letter service (0-100g) is £1.25p*.

Royal Mail remains committed to the Universal Service, providing the one-price-goes-anywhere service to approximately 31 million addresses across the UK. However, as customer behaviours change, and the number of UK addresses continues to grow, the costs of delivering the Universal Service are increasing.  Letter volumes have decreased from more than 20 billion letters a year in 2004/5, to approximately eight billion letters per year now, while the number of addresses has risen by four million in the same period.

Royal Mail is currently expected to report an adjusted operating loss of £350 million to £450 million for the full year.  In light of changing consumer needs, and the company’s materially loss-making position, last year Royal Mail requested that the Government amends the Universal Service Obligation from six days a week to five for letters.

Ofcom’s research shows that a five day letter service (Monday to Friday) would meet the needs of 97% of consumers and SMEs. Being required to provide a service that consumers have said they no longer need, at significant structural cost to Royal Mail, increases the threat to the sustainability of the Universal Service.

Nick Landon, Chief Commercial Officer at Royal Mail said: “We appreciate that many businesses and households are facing a challenging economic environment and we are committed to keeping our prices affordable.

 “Letters have declined by 25% compared to pre-pandemic. We have to carefully balance our pricing against a continued decline in letter volumes and the increasing costs of delivering letters six days a week to an ever-growing number of addresses across the country.

“We are seeing a fundamental change in consumer needs with a greater shift in demand from letters to parcels.  It is vital that the Universal Service adapts and stays both relevant and sustainable..  We need to make these price changes to ensure we can continue to maintain and invest in the one-price-goes-anywhere Universal Service for years to come.”