DX Group – Royal Mail VAT advantage stifles competition (UK)

The DX Group has reminded Postcomm that the VAT exemption applied to Royal Mail is, in their view, continuing to stifle competition.

In response to Postcomm’s Strategy Review, Michael MacClancy, Head of Regulation at DX said:

“Royal Mail’s VAT exemption will continue to tip the playing field against end to-end entrants for the foreseeable future. The VAT exemption extends to positive discrimination in favour of so-called access competition over end-to-end competition. If consolidators such as TNT and UK Mail use Royal Mail for final delivery then they can take advantage of the recently introduced agency agreements to minimise VAT liability for their customers. If they use another operator (such as DX) they must charge VAT.”

“The VAT exemption not only places entrants at a disadvantage in comparison with Royal Mail, it also gives TNT and UK Mail an advantage in comparison with other operators. Furthermore, as we have argued previously, access is a very limited form of competition with limited economic benefits. If Postcomm really does wish to create the right conditions to enable a further withdrawal of sector specific regulation it will have to find a way of promoting end-to-end competition that will apply pressure along the whole of Royal Mail’s value chain.”

“Postcomm should avoid further tilting of the market towards the access model. We note that there are substantial differences between the postal markets of the UK and USA, not least of which are the statutory monopoly over delivery enjoyed by USPS and a workshare pricing mechanism that appears to leave USPS with a considerably higher proportion of the revenue than the UK equivalent.”