Royal Mail warns on stamp prices

Royal Mail Group has called for greater flexibility to increase postage stamp prices after warning that it may face extra costs of at least Pounds 1bn over the next three years.

Postcomm, the postal regulator, has already agreed to a 1p increase in the price of first class and second class stamps from April to help stem Royal Mail’s Pounds 1.1m-a-day losses, as long as average prices are then frozen until 2006.

But Royal Mail claims this could be swamped by a potential Pounds 330m black hole in its pension funds and a further Pounds 280m to cover possible rises in interest payments on government loans.

Allan Leighton, the group’s chairman, had already warned this year that the tough conditions proposed by Postcomm in exchange for the 1p price increase would lead to additional losses of Pounds 460m rather than a rise in revenue. Royal Mail also faces a Pounds 120m increase in national insurance payments as a result of changes announced in the Budget.

The latest warning was made in a 100-page submission to Postcomm this month in response to regulatory pricing proposals covering the period from 2003-04 to 2005-06.

A Royal Mail official said: “We are not saying we want further increases in stamp prices straight away but if we need an extra increase of a penny in the future to cover things such as a pension shortfall we would like the flexibility to do that.”

Royal Mail’s retirement scheme is one of the largest in Britain with more than 400,000 members. The group has two main pension funds – one for staff who joined prior to 1987 and one for recruits since then.

The combined value of the funds fell from Pounds 17.8bn to Pounds 15.6bn in the year to March and is expected to show another sharp fall by March 2003 because of the poor performance of the equity markets. Royal Mail said there were no plans to close the group’s final salary scheme but this could not be ruled out in the future.

A Postcomm official said it was studying Royal Mail’s submission and hoped to make a considered response by the end of January.

Postal services will be partially opened to competition on New Year’s day, enabling profitable continental rivals such as Deutsche Post to target the bulk mail market.

Copyright © 2002: Financial Times Group

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