Postal talks point to higher prices

The postal regulator is to hold a series of talks with Royal Mail during the next few days, raising hopes that the group will be allowed to raise prices on a range of items.

Postcomm has already said that it is prepared to meet Royal Mail’s request to raise first and second-class stamps by 1p.

However, in a move that angered Allan Leighton, chairman of Royal Mail, the regulator also set out plans to curb prices on a range of “secondary” items, including airmail and heavy packages. Mr Leighton has said that the move would cost Pounds 460 million and that unless they were dropped he would appeal to the Competition Commission.

Royal Mail raised the price of secondary item services before Christmas, just a few weeks before the regulator’s final pronouncement was due. Postcomm has since hinted at compromise and has already delayed plans to allow rivals into the market.

Royal Mail has given warning that an unfavourable pricing plan could force it into bankruptcy because it would be forced to default on government loans. The Department of Trade and Industry (DTI) has strongly supported Royal Mail’s position in a submission to Postcomm, leaving the regulator with virtually no allies.

Yesterday the DTI set out the details of its Pounds 1.8 billion package of aid for Royal Mail. More than Pounds 1 billion of debt, which is being made on commercial terms in the form of loans and bonds, is not repayable until 2007 and 2009. Royal Mail, which is losing more than Pounds 1 million a day, aims to return to profitability by 2005. It began cutting 30,000 jobs last year.