Price of stamp could rise 17%

Royal Mail, the troubled postal services group, yesterday gave warning that the price of stamps could rise by up to 17 per cent if a campaign to end its VAT-exempt status on business services is successful.

Charging VAT on Royal Mail’s business services would be another blow to Allan Leighton, chairman of Royal Mail, who is struggling to reduce the organisation’s huge losses.

A spokesman said: “The last thing we want is to put up our [business service] prices by 17 per cent. That would affect everything from business services to the price of stamps because we can’t differentiate between many services we handle.”

Rivals have been pressing the Treasury and Customs and Excise to end Royal Mail’s VAT-exempt status on business services when competition begins in January. Hays, the logistics company, and Business Post complain that Royal Mail will have an unfair advantage because it does not have to charge VAT. The two companies also believe that the exemption is illegal under European law.

The issue is especially important for companies that want to strike deals with charities and some financial groups that cannot claim back VAT.

The new pressure on Royal Mail comes at a fraught time. On Tuesday sub postmasters accused the Government of diluting proposals to introduce post office banking services, which would encourage more people to use post offices.

If Royal Mail’s VAT exemption is ended, it would, however, let it claim back VAT on goods and services that it buys.