Royal Mail seeks 6p rise on stamps

Royal Mail is to call for a 6p rise in first and second class stamp prices under a radical relaxation of regulatory controls the state-owned postal operator will argue is necessary to its survival. Businesses would also lose the legal right to have franked mail delivered to every address in the UK according to the proposals, which Royal Mail will this week put to Postcomm, its regulator. Royal Mail wants this “universal service obligation” (USO) to apply to stamped mail only.

The operator is also calling for an end to all regulatory controls on bulk business mail, such as lucrative junk mailings. The proposals will anger small businesses, which benefit from existing price controls. Royal Mail’s relatively high prices for bulk mailings cross-subsidise other services, such as the 6p loss incurred on each stamped letter. But Adam Crozier, Royal Mail’s chief executive, said the changes were needed to ensure the company’s financial viability and hence its ability to continue to deliver post to far-flung and unprofitable corners of the UK.

“There is an urgency about this because … just allowing things to continue as they are will put the USO at risk,” Mr Crozier told the Financial Times. “This is not scaremongering in any shape or form, you can see that when you look at [Royal Mail’s] financial numbers.”

The state-owned company has lost a string of valuable contracts since the UK market was opened to competition at the start of last year. The government this month announced a multi-billion pound support package to help the company modernise and to deal with a GBP 6.6bn pensions deficit that wiped out virtually all its profits for the first half of 2006-07.

But he argued Royal Mail also needed urgent regulatory action to compete effectively in the liberalised market. “This is not us bleating and saying ‘can we have protection’. [It’s] about us being allowed to compete,” he said. Stamp prices – currently 32p first class and 23p second class – were set by Postcomm last year until 2010, but with an option to revise the controls in April 2008. Postcomm will decide whether to exercise this option following a review later this spring.

Royal Mail argued yesterday that Postcomm should rethink its proposed price controls for 2008 and beyond because the impact of competition in the UK has been “faster and greater” than the regulator expected. The UK is acting as a test bed for the proposed liberalisation of other major European postal markets. Its price controls are allowing competitors from those markets – such as Germany’s Deutsche Post and the Netherlands’ TNT – to cherrypick the best UK business, the UK operator believes.

“Our rivals are creamskimming all the profitable [bulk business] mail,” Mr Crozier said.

The price controls limit the amount Royal Mail can charge rivals for allowing them access to its delivery network for bulk mail, while forcing it to deliver personal and small business post at a loss, he said.