Royal Mail to increase stamp prices 30% from next month

Royal Mail will increase its first class stamp prices 30% and second class stamp prices nearly 40% from the end of next month. The British postal operator made the announcement today as the regulator Ofcom made its official decision to scrap regulatory price controls on all Royal Mail services other than second class letters, small parcels and large letters.

From April 30, the First Class stamp price for a basic letter will rise from 46p to 60p, while the Second Class stamp price will rise from 36p to 50p.

Royal Mail insisted it had “thought very carefully” about the impact of price rises on its customers, but said the viability of its universal postal service was at “severe risk” given the billion-pound losses made by its core mail operations over the past four years as prices were kept “artificially low” by the previous regulatory regime.

Among other price changes from the end of next month, large letter prices for First Class will rise 20% to 90p and for Second Class by 19% to 69p.

Royal Mail delivered 16bn letters to 29m addresses last year, but while the number of delivery points has increased 7.4% since 2003, mail volumes have fallen by 25% since 2006 as customers move from traditional mail to Internet-based communication channels.

Moya Greene, the Royal Mail chief executive, said today that she had “no option” but to increase stamp prices.

“Royal Mail provides one of the highest quality postal services in Europe for amongst the lowest prices for both consumers and business,” she said.

“That service is under threat from declining volume, e-substituion and ever-increasing competition. Because of these pressures Royal Mail has lost GBP 1bn over the last four years; the sustainability of the service is now at risk.

“Price increases are needed to return the universal service to sustainability,” added Greene.

Royal Mail insisted it was continuing to work hard to improve its efficiency and modernise its network, with its workforce reducing by 50,000 people over the past decade.

As revealed last month, in the run-up to Christmas this year, low-income households will be able to buy their stamps at 2011 prices. From November 6 until the last posting date before Christmas, eligible people will be able to buy up to three books of 12 stamps at the rate of 46p for First Class stamps and 36p for Second Class.

Royal Mail’s bulk mail prices are set to rise from April 2, 2012, by an average of 11%.

Ofcom

Ofcom, which took over postal regulatory duties in the UK back in October, unveiled its new regulatory framework for overseeing Royal Mail today, following a consultation last year.

The framework offers Royal Mail considerably more freedom in setting its prices, as the regulators believe there is now enough competition for the physical mail channel for the postal operator to keep its price increases in check.

Ofcom said today it will cap Second Price stamps for standard letters at 55p for seven years, to allow vulnerable consumers protection from rising postage rates.

The regulator also decided to extend its price cap to Second Class small parcels and large letters up to 2kg in weight, but this cap will not apply to the 2012/13 financial year. Ofcom will consult on the price cap level next month.

Elsewhere in the new Ofcom framework, Royal Mail will have freedom to set its wholesale prices for other operators like TNT Post and UK Mail to access its last mile network, but will have controls on the margins between its wholesale and retail prices

The UK’s universal service obligation continues as a six-day-a-week service, five-days-a-week for packets, across the whole of the UK, requiring 93% of First Class letters to arrive next-day, and 98.5% of Second Class mail to be delivered within three days of posting.

Ofcom group director of competition Stuart McIntosh insisted that the new framework did ensure that Royal Mail’s products will remain affordable even for vulnerable consumers and small businesses.

He said: “Ofcom’s decisions are designed to safeguard the UK’s postal service, ensuring it is sustainable, affordable and high-quality, to the end of the decade and beyond.”