Consignia to compensate for delayed or lost mail

Households will be eligible for compensation running into tens of millions of pounds for lost or delayed letters under a scheme expected to be unveiled today by the postal regulator.

Postcomm is expected to announce that Consignia will have to pay domestic customers up to £14 for each delayed letter and up to £27 compensation for any letter lost or destroyed in the post.

Consignia recently admitted losing up to half a million letters a week and industry estimates suggest the compensation scheme could cost it £60m a year unless its performance improves dramatically.

Postcomm is also expected to confirm that Consignia will be allowed to increase the price of first and second-class stamps by 1p from next April. This will take the price of a first-class letter to 28p and a second-class letter to 20p.

After that, it will have to freeze prices for three years. The price increase will be worth £170m a year to Consignia, which is losing £1.5m a day and faces competition from next April for the first time in its 300-year history. The group is changing its name to Royal Mail at the end of the year and has embarked on a £1.3bn cost-cutting drive involving 30,000 job losses.

The price rise will be tied to tougher performance targets for the Royal Mail, designed to improve the reliability of letter deliveries in all regions of the country. Under the present system, it is only penalised if its standard of service drops below an agreed target across the country as a whole. Under the new proposals, it will be penalised if the percentage of first-class letters delivered the next day drops below 91.5 per cent in any of the 118 mainland postcode areas. The overall national target for first-class letter delivery is also being raised to 93 per cent.

In some areas of the country, such as London and parts of the Home Counties, the percentage of first-class letters arriving on time is only 83 per cent.

Business customers will be eligible for refunds automatically on the basis of a 1 per cent discount on their bill for every 1 percentage point by which Consignia undershoots its performance target.

Under the current system, the company was liable for fines totalling £8m last year but the regulator decided to waive these in view of the amount of money it was losing already.

The price increase ­ the first since spring 2000 ­ is expected to come into force next April, four months later than Royal Mail had hoped. The company has been keen to point out that Britain still has the cheapest post in Europe.

The consumer group Postwatch ­ which has been sharply critical of Consignia’s performance ­ has voiced fears that under certain circumstances, the Royal Mail may be able to raise prices again before the end of the three-year price freeze.