Cost warning from Royal Mail over access rates

The Royal Mail issued a fresh warning today about its recovery plans if it was “forced” to deliver millions of letters for competitors at a loss.

Chairman Allan Leighton said stamp prices may rise by 4p for first class and 7p for second class and the universal service could start to “unravel.”

The warning was made in a submission to the industry’s regulator Postcomm which is proposing that the Royal Mail should charge 11.5p for delivering letters on behalf of other firms – so-called access rates.

The true cost of delivering a letter was 13p, so the “artificially low” proposal would hit Royal Mail’s profits by up to £280 million over the next three years, it was warned.

Price control limits on the Royal Mail, coupled with customer demands for lower prices in line with access rates, would remove up to £370 million of revenue, said Mr Leighton.

“This can’t be what the regulator intended. In the end something will have to give and it will probably be the universal service.

“Postcomm are about to let the genie out of the bottle with no precedent, no control and no way back. The regulator’s primary duty is to maintain a universal service at a uniform price.

“Dismantling the existing pricing structure isn’t the way to do it.”