Price of stamps to increase by 1p
The Royal Mail was today given the go-ahead to raise first- and second-class stamps by 1p from April, but strict price controls will be put in place for the next few years to limit further increases.
A new compensation scheme will be launched for late mail, which could payout GBP10 if post is delayed by 10 days or more.
Postcomm, the industry’s regulator, said its three-year price control would net Royal Mail GBP750 million extra cash to help it improve services and prepare for increased competition.
In a letter to Allan Leighton, chairman of the Royal Mail, Postcomm chairman Graham Corbett said: “These proposals enable you to maintain the momentum that you have begun to build, by covering all Royal Mail’s reasonable costs including capital expenditure and the costs of its renewal plan over the three years of the control.
“The control provides customers with important protections against excessive price rises, introduces raised service quality standards and, for the first time, provides a formalised compensation scheme for delayed mail.
“We believe that these proposals should encourage Royal Mail to push ahead with rebuilding both its reputation and its profitability.”
The Royal Mail, which is losing over GBP1 million a day, has been trying to seek permission for months to increase the price of stamps, currently 19p for second class and 27p for first class.
Postcomm said the Royal Mail will be allowed to increase second class stamps by another 1p in 2004 or 2005, provided it balances this with price reductions elsewhere.
Mr Leighton gave a cautious welcome to the announcement, adding that it had taken the Royal Mail 300 days to gain approval for the “modest” 1p increase.
“But it is to be followed by a regime of real term price cuts. The question Royal Mail’s board now faces is: do these complex and tight price control proposals give us sufficient financial headroom over the next three years?
“If the answer is no, then our ability to provide a one-price universal service to the UK’s 27 million addresses will be destroyed and we will have to trigger a referral of the proposals to the Competition Commission.
“Postcomm say that the revised package means #750 million more cash for Royal Mail, but inflation alone will swallow more than half of that, and the rest comes with strings.”
Peter Skyte, national secretary of the Communication Managers Association, which represents 14,000 postal managers, said: “Whilst we welcome the proposed increase in stamp prices, the price controls proposed do not provide for sufficient flexibility for the company to react to external events such as possible introduction of VAT on postal products.
“They could also threaten the future viability of the company’s final salary pension scheme, affecting 200,000 people, as adequate provision has not been made.”
Under the compensation scheme, domestic users will receive 12 first-class stamps where it is not easy to prove how many days a letter has been delayed, rising to #5 where there is clear evidence of delay, and #10 for a delay of 10 days or more.
For delays to special delivery mail, postage costs will be refunded on top of compensation.
