UK Royal Mail wants more scope to set stamp prices

Royal Mail has called for more freedom to set stamp prices, especially for bulk business mail, to enable it to better compete with private sector groups entering the UK postal market.

The state-owned group was responding yesterday to proposals by regulator Postcomm to liberalise fully the UK postal market by January 2006, more than a year earlier than planned.

About 30 per cent of the postal market has been open since April last year, meaning that private sector companies can now offer bulk mail services consisting of more than 4,000 letters.

A further 30 per cent of the market was to be opened by April next year, with full liberalisation by April 2007. But Postcomm is now suggesting the middle stage be scrapped and competition brought in to all parts of the postal market by January 2006.

Royal Mail said the market should be opened sooner but only if pricing restrictions were removed. “The handcuffs have got to come off. Royal Mail wants to see simple, light-touch regulation allowing the company to make an acceptable rate of return on its turnover,” said the group.

It said its Dutch and German rivals, who charge much more for their services, make returns of more than 20 per cent compared with 2.5 per cent at Royal Mail, which has resisted efforts to open the market.

Nigel Stapleton, Postcomm chairman, said interested parties had until December 20 to respond to the proposals and a decision would be made in February. “If something comes out of the consultation that we have not evaluated properly we would not exclude changing our proposals,” he said.

But he added that Royal Mail’s stronger financial position, following the group’s recent restructuring, meant it had less reason to resist change. “The big difference this time is that Royal Mail is welcoming it,” said Mr Stapleton.

Royal Mail’s prices are set by Postcomm every few years and until 2006 are rising at 1 per cent less than inflation. The next round of price control talks will start next year. Postcomm said it would allow Royal Mail more flexibility to raise its charges in future but only in parts of the market where competition had been established. Royal Mail said bulk business mail, one of the most profitable parts of the market, should be excluded from regulation.

Postcomm has also said it would start talks with the Treasury about changing Royal Mail’s VAT-exempt status, seen as the main barrier to competition in the UK market. Private mail companies have to charge 17.5 per cent VAT on their services while Royal Mail does not, making it easier for Royal Mail to offer cheaper prices.

Postcomm has proposed “a reduced rate of VAT, around 5 per cent, applied to all postal operators, including Royal Mail”. Mr Stapleton said a change to Royal Mail’s VAT was unlikely to happen before the general election and would require the alteration of the European Union postal directive.