Postcomm consults on a price and performance package to benefit customers and Consignia

On 3 October Postcomm put forward for consultation a package of proposals that would limit postal prices and require Consignia to deliver better services – or pay compensation to customers if it fails to do so.

The draft proposals include:

· A 3% increase in average prices from April next year. This would allow Consignia to increase the basic 1st and 2nd class stamp prices by 1p, and make equivalent increases in other business services.

· A limit on further revenue increases of RPI-2.5% until March 2006. Assuming forecast rates of inflation, this would effectively freeze prices.

· A tightening of Consignia’s service standards including an increase in the target for 1st class letters delivered next day. The new standards will also remove unacceptable regional disparities and create uniformity in high delivery standards.

· For the first time enforceable schemes to compensate domestic and business users for late delivery of post.

Graham Corbett, chairman of Postcomm said:

“The price control proposals we are putting out for consultation today follow the interim price freeze on most products imposed by Consignia’s original licence two years ago. They are more akin to an extension of that interim control than to a fully fledged regulatory package, and are designed quite deliberately to give Consignia a breathing space to implement its renewal plan, while protecting customers from unacceptable price increases.
”This is another important step in putting into effect Postcomm’s conviction that a robust and competitive postal market can only be created with a robust and competitive Consignia at its core.”

Consignia has raised two concerns in particular about these proposals. These are:-

– that competitors will win market share for cheaper-than-average products, leading to an increase in Consignia’s average costs; and
– that Postcomm is proposing a tougher price control for so-called Category B products, such as Special Delivery, Standard Parcels and airmail.

Postcomm will seek further evidence and submissions from Consignia on these issues during the consultation period.

In more detail:-

Postcomm has always made clear the importance it attaches to its duty to secure the universal service, and its belief that a strong and healthy Consignia is essential to a strong and healthy postal services market in the UK.

Consignia’s domestic mail business is essentially sound. (The Royal Mail and Group Centre together made a small profit in 2001-2 before exceptional charges, and Consignia has announced a major cost-reduction programme.) However, the wider group has severe problems.

Postcomm has therefore developed a control which is designed to allow modest initial price increases followed by a resumption of the present price freeze. Its impact will be supplemented by the performance pressures that will come from competition, from financial incentives and from quality targets.

The structure and duration of this package is designed to enable Consignia to undertake its renewal plan. The proposals also recognise the ambition and importance of that renewal plan, and the uncertainties surrounding it.

The price rise: A 3% price rise allowed in revenues next April would allow Consignia to increase the basic 2nd class stamp price from 19p to 20p. It would also allow Consignia to increase the basic 1st class stamp price from 27p to 28p. These increases, and similar increases for other postal prices, would bring in around an extra £170 million a year to Consignia

Price freeze: From next April, Consignia’s average revenue per item would not be allowed to rise by more than RPI – 2.5%. Assuming inflation averages 2.5% (the Bank of England target) this is equivalent to a price freeze. Within this overall limit, Consignia would be able to increase or reduce prices to respond to competition, but would not be able to raise any individual price by more than the rate of inflation.

Improved service quality The new service delivery targets have been proposed jointly by Consignia and Postwatch, the postal consumer body. Standards for regional performance would be raised to iron out variations in service quality in postcode regions around the country.

Improved compensation The proposed scheme is the first to specify levels of compensation for late delivery of ordinary mail. Up to now, any compensation has been at the discretion of Royal Mail. If Consignia’s performance continues at last year’s level, this could cost the company £60m.

The proposed compensation scheme would offer domestic users up to £14 per item for late mail. Compensation of up to 100 times the cost of a first class stamp (currently £27) would be payable for lost or damaged mail. Bulk mailers would be entitled to an automatic rebate: Consignia would compensate them 1% of their bill for every 1% it failed to meet relevant targets.

Notes for editors

The 19p charge for second class letters was first introduced in November 1993. It was increased to 20p by the Post Office in July 1996, then went back down to19p in April 1999. The 27p charge for first class letters – a rise of 1p — was first introduced in April 2000.

Compensation: Domestic users would be able to claim £3 when a first class letter was more than four days late or a second class letter more than six days late. From these thresholds, the level of compensation would rise by £1 a day to a maximum of £14. For first class post, maximum compensation would be payable 16 days after the expected delivery, and 18 days for second class. After this period, the mail would be regarded as lost. Similar schemes would apply to special delivery and parcel deliveries. Senders or receivers of domestic mail would be able to claim compensation, but not both. The table gives the details of the proposed levels of compensation.

Number of working days after item was posted First Class mail Special Delivery Second Class Mail Parcels
£ £ £ £
1 Due Due 0.00 0.00
2 0.00 3.00 0.00 0.00
3 0.00 4.00 Due due
4 0.00 5.00 0.00 0.00
5 3.00 6.00 0.00 0.00
6 4.00 7.00 0.00 0.00
7 5.00 8.00 3.00 0.00
8 6.00 9.00 4.00 0.00
9 7.00 10.00 5.00 0.00
10 8.00 11.00 6.00 0.00
11 9.00 12.00 7.00 3.00
12 10.00 13.00 8.00 4.00
13 11.00 14.00 9.00 5.00
14 12.00 15.00 10.00 6.00
15 13.00 16.00 11.00 7.00
16 14.00 17.00 12.00 8.00
17 Lost Lost 13.00 9.00
18 Lost Lost 14.00 10.00
19+ Lost Lost Lost Lost

Levels of compensation are intended to be reasonable and take account of the different classes of product covered by the scheme. Claims will need to be supported by information about the circumstances of the delay. Royal Mail will closely investigate repeat claims.

Competition: Postcomm announced in June 2002 that 30% of Consignia’s market would be open to competition from January 2003, and 100% by April 2007.
MORE
Postcomm regulates Consignia’s prices and services where it is the monopoly provider or where there is little competition to protect customers. The current price control operates on 90% of Consignia’s revenues from mail activities and includes 1st and 2nd class post and the Mailsort services used by bulk mailers. The control does not apply to Post Office Ltd.

Today’s proposals follow 18 months’ work by Postcomm and an independent efficiency study of Consignia by consultants W S Atkins.

The text of the consultation documents, Review of Consignia plc’s Price and Service Quality Regulation, and Review of Consignia plc’s Price and Service Regulation: A Compensation Scheme can be found on Postcomm’s website www.postcomm.gov.uk. Copies are available from Postcomm at 6 Hercules Road, London SE1 7DB. Responses are requested by 2 December 2002.

Postcomm – the Postal Services Commission – is an independent regulator. It has been set up to further the interests of users of postal services. Postcomm’s other main tasks are to:
· Seek to ensure a universal postal service at an affordable uniform tariff
· Encourage competition in postal services
· License postal operators
· Control Consignia’s prices and quality of service
· Give advice to Government on the future of the post office network.

Postcomm’s policies are steered by a board of seven commissioners, headed by the chairman, Graham Corbett CBE.

More information: Chris Webb Tel 020 7593 2114
Mobile 07779 635881
E [email protected].
or [email protected]

Jonathan Rooper Tel 020 7766 1210
Pager 07693 352732
E [email protected]