Ofcom to review affordability of post amid concerns over Royal Mail’s stamp prices

UK postal users will have extra protections against long delivery delays, under reforms to the universal service announced today by Ofcom, which will enable Royal Mail to improve reliability and support a sustainable service.

Why reform is needed

Since 2011, Royal Mail has been required under the universal service obligation to deliver First and Second Class letters six days a week. But in that time, the number of letters sent each year has more than halved. With fewer letters being delivered to each house on a given round, the cost of delivering each letter has increased, and Royal Mail has lost hundreds of millions of pounds in recent years.

Urgent reform is needed for the universal service to survive. To put the service on a more sustainable footing, to prevent people from paying higher prices than necessary, and to push Royal Mail to improve reliability, Ofcom has today made changes to the obligations imposed on the company.

This follows public consultation with thousands of people and organisations – including consumer groups, unions, small businesses, public services, Royal Mail and the wider postal industry, as well as postal users directly – from right across the UK.

We have also launched a review of pricing and affordability, which will consider concerns that many people and organisations have raised about stamp prices. We plan to consult on this next year.

Natalie Black, Ofcom’s Group Director for Networks and Communications, said: “These changes are in the best interests of consumers and businesses, as urgent reform of the postal service is necessary to give it the best chance of survival.

“But changing Royal Mail’s obligations alone won’t guarantee a better service – the company now has to play its part and implement this effectively. We’ll be making sure Royal Mail is clear with its customers about what’s happening, and passes the benefits of these changes on to them.

“As part of this process, we’ve been listening to concerns about increases in stamp prices. So we’ve launched a review of affordability and plan to publicly consult on this next year.”

Responding to the announcement, Martin Seidenberg, Group Chief Executive Officer, International Distribution Services said: “We welcome today’s announcement from Ofcom. It is good news for customers across the UK as it supports the delivery of a reliable, efficient and financially sustainable Universal Service.

“It follows extensive consultation with thousands of people and businesses to ensure that the postal service better reflects their needs and the realities of how customers send and receive mail today.”

What reform will deliver – Ofcom’s position

Ofcom’s research suggests that affordability and reliability are more important to people than speed of delivery, although they value having a next-day service available for occasional urgent items. Royal Mail will therefore continue to be required to deliver First Class letters the next working day, Monday to Saturday, and there will continue to be a cap on the price of a Second Class stamp.

However, people have indicated that most letters are not urgent and do not require six-day-a-week delivery. So, from 28 July, Ofcom will allow Royal Mail to deliver Second Class letters on alternate weekdays – still within three working days of collection – Monday to Friday.

Ofcom estimates that Royal Mail could realise annual net cost savings of between £250 million and £425 million with successful implementation of this change, enabling it to invest more in improving its delivery performance. Royal Mail has been instructed to hold regular meetings with consumer bodies and industry groups to hear about the experiences of people and businesses as it implements these changes.

Ofcom’s research also shows that small reductions in Royal Mail’s delivery targets would continue to meet people’s needs. Maintaining the current targets – which are more demanding than those in comparable European countries – would incur higher costs that would likely need to be recovered through increased prices.

Accordingly, Ofcom is making small changes to Royal Mail’s existing delivery targets – for First Class mail from 93% to 90% delivered next-day, and for Second Class mail from 98.5% to 95% delivered within three days. These new targets remain high by international standards.

However, many people have experienced long delays where letters have taken weeks to arrive. To address this, Ofcom has set Royal Mail new enforceable backstop targets so that 99% of mail must be delivered no more than two days late.