Mail regulator caves in over stamp prices

Graham Corbett, chairman of Postcomm, the postal regulator, will this week tell Royal Mail that it will be allowed to raise the price of first and second class stamps by one penny.

Corbett will also reveal he is prepared to drop a number of onerous requirements that were first aired in his controversial three-year pricing proposal last October. But he will fall short of removing all his initial proposals and he wants to ensure that Britain’s postal business remains a competitive arena.

Corbett has spent the past month in talks with Allan Leighton, chairman of Royal Mail, and other executives. One of the regulator’s most significant concessions will be to modify the proposed fixed annual price cap of 29.1p. This will give more pricing flexibility back to Royal Mail.

Leighton has made it clear, however, that if the regulator’s draft proposals are not sufficiently relaxed, he will take his case to the Competition Commission.

When they were first disclosed he said that if they were all adopted it would reduce the group’s revenues by Pounds 460m. The postal group will have a 28 day consultation period with Postcomm before it has to decide what action to take.

Corbett’s decision to allow a penny increase will generate an extra Pounds 170m for Royal Mail.

It comes at a time when the postal network is still losing Pounds 1.1m a year.

Leighton has also warned Postcomm that the company could default on a Pounds 3billion loan facility from the government and end up in administration unless the regulator agrees to ease price curbs on the organisation.

The new price rise will be frozen for three years but Leighton has stressed to the regulator that he still needs more flexibility to raise stamp prices during this period should the need arise.

Royal Mail has made little secret that it will have to tackle the impending deficit in its pension fund, which is expected to become critical within three years. An actuarial review of the fund is taking place and the result will accompany the year-end figures, which will be published in the summer.

Compared with other European countries British stamp prices are among the cheapest. The price of a second-class stamp is still the same as it was in 1993.

Royal Mail is understood to have put pressure on the government to ask the regulator to soften its stance. The government put in its own submission to Postcomm that it was prepared to help finance the restructuring of Royal Mail only on the basis that it was allowed to be run on a commercial basis.

This week Adam Crozier, former chief executive of the Football Association, will start his job as Royal Mail’s chief executive. The first two weeks will involve him becoming familiar with every aspect of the group’s business. This will include doing a short spell as a postman and in a Parcel Force depot.

Leighton has insisted that all new boardroom appointments, including non executive directors, spend time learning about the business at operational level.