Post prices to be frozen
Consignia, formerly the UK Post Office, is to have most of its prices frozen for two years in a draft operating licence soon to be published by the Postal Services Commission, the newly appointed UK government watchdog.
Graham Corbett, the commission’s chairman, has decided to order a freeze while a team of economists works out a basis for long-term price controls, probably using the RPI-X formula adopted by other utility regulators.
The freeze will cover all Consignia products that face no significant competition, including the first- and second-class post, parcels posted at post offices and direct-mail contracts. It will apply from March 26, when Consignia will become a government-owned plc in line with last year’s Post Office Act. From that date, any company operating postal services must be licensed by the regulator.
The freeze will cover about 80 per cent of Consignia’s revenue. The main exclusion will be the distribution of material such as leaflets not addressed to individuals, where there is competition from, for example, deliverers of free newspapers.
Mr Corbett intends to consult on the precise scope of the freeze, and Consignia will be able to seek permission to raise specified prices. However, officials said the company would need to make “a very good case”.
Consignia last raised letter prices in April last year, when the price of a first-class stamp rose 1p to 27p. Second-class stamps remained at 19p, but many other prices were raised, and many are negotiated direct with companies.
The decision to freeze prices suggests that the regulator is likely to take a tough line with Consignia, which reported a first-half loss of £33m ($49m) in December, and is expected to struggle to make a profit for the full year.
The draft licence is expected to include strict targets for quality of service, including making the company’s existing target of delivering 92.5 per cent of first-class mail overnight a legal requirement. There will be provisions for fines if Consignia fails to deliver, and officials warn that industrial action by staff would not be regarded as a reasonable excuse.
The draft licence will also force the company to open its infrastructure to competitors at reasonable prices. However, the regulator has so far received no applications to compete with Consignia, despite informal expressions of interest from most of Europe’s postal services and private-sector express mail companies.
