Mail wins support of DTI over pricing
Allan Leighton, chairman of the Royal Mail, yesterday won the backing of Government in his fight with the postal regulator over price controls.
In a move that raised questions about the independence of Postcomm, the Department of Trade and Industry urged the regulator to modify its price proposals.
Mr Leighton believes Postcomm’s controls could jeopardise his recovery plan for the Royal Mail and the promise of Pounds 3 billion in state funding for the troubled postal group.
He will be pleased at having government support, but the issue has sparked controversy about whether the department was putting undue pressure on an independent regulator.
Tim Yeo, the Shadow Trade and Industry Secretary, said: “While I have some sympathy for Royal Mail’s position and am glad that the current management at last seem to be getting to grips with the situation, ministers must not be seen to be second-guessing the regulator. Independence of regulators is of utmost importance.”
Graham Corbett, the head of Postcomm, has said that Royal Mail can put up the price of first and second-class stamps by a penny each. But he has also called for price cuts in a number of other services such as airmail and items costing more than Pounds 1 to post. Mr Leighton has attacked the proposals as unworkable and has claimed that the price cuts would cancel out the benefits of the penny increase.
In a submission to Postcomm, the DTI says that while it welcomes plans for a penny increase in stamps “other elements of the proposals such as the revised treatment of category B products mean that there is a danger that the increase in regulated revenues will be negated, as Royal Mail would no longer be allowed to increase the price of these products by inflation.”
The DTI says the Pounds 3 billion worth of loans it is giving Royal Mail for its recovery programme is available only as a “satisfactory commercial investment”. The Government says it has offered the money on the basis of Royal Mail’s strategic plan. Mr Leighton has said that this plan will be undermined by the regulator’s current proposals.
The DTI’s submission says that there is no additional money for Royal Mail and that its cash position is fragile. “On the basis of the figures in the strategic plan, there is a reasonable case to make the investment on commercial grounds. The cashflows are, however, worryingly weak.”
Postcomm refused to comment on the DTI’s statement except to say that it will be considered with all the other responses. The organisation meets next week to finalise its plans but is not expected to announce them until next month. Mr Leighton has said that he will take any proposal other than a straightforward penny increase to the competition authorities. If that move is unsuccessful then he would take the issue to judicial review because he says the plans as they stand threaten Royal Mail’s recovery plan.
The Communication Workers Union has opposed the pricing plans, calling for Mr Corbett to be sacked. It has said that the pricing proposals from Postcomm are so stringent they could damage the universal service obligation -the legal duty of Royal Mail to charge the same price for mail sent any distance in the UK.
Royal Mail said: “It’s no use Postcomm allowing us the 1p price rise but grabbing back all of the benefit by imposing tight price constraints.”
