UK Stamp price rise 'unjustified'

Royal Mail will today be given the freedom to increase the price of a first class stamp by 3p to 30p over the next two years, consumer lobby Postwatch claimed in an attack on the industry regulator last night.
Postcomm, the regulator, is expected today to give the formal go-ahead to Royal Mail to raise the price of first and second class stamps by 1p on May 8 as part of a three-year price control that has considerably eased since original proposals last October imposed a price freeze.

Gregor McGregor, Postwatch’s chief executive, said the looser controls gave Royal Mail, chaired by Allan Leighton, the ability to raise the price of a first class stamp by 1p in each of the next three years and that of a second class stamp, now 19p, by 2p between now and 2006.

“If you have given them the freedom to do this they would be lunatic not to do it,” he said, pointing out that the original proposal would have allowed Royal Mail to raise its overall prices by the rate of inflation minus 2.5%, and was now by RPI minus 1%.

Royal Mail, in a fierce lobbying campaign, claimed the original proposal would have enabled it to increase annual revenues by £170m, or £510m over the three years, but it would have seen £460m clawed back via the pricing formula.

Postwatch, in an unpublished response to the regulator’s revised proposals of early February, says Royal Mail will be able to raise at least 50% more or £750m, and even £1bn in the three years.

“Postwatch is not convinced that a correct balance has been struck between the interests of consumers and those of Royal Mail in the regulator’s current proposals,” it said. “Consumers are being asked to pay significantly more than the 1p:1p originally proposed, with little justification by way of hard evidence or sound logic.”

The consumer body argues Royal Mail will be able to lower unopposed prices of products also supplied by new competitors while imposing “disproportionately high increases” on other consumers relying on monopoly services, such as letter mail.

Mr McGregor said the regulator had in effect encouraged “sweetheart deals” for bulk direct mail users in a move that could stifle competition.

Postwatch accused the regulator of imposing “unreasonably and unnecessarily short deadlines” on consultation over its plans and of virtually ignoring counter-proposals from itself and other bodies.

“Our view is that some of the proposals are acceptable, many are questionable because they are not adequately explained or properly justified, and some cannot be supported because they are not in the interests of consumers,” it said.

This emerged as Dan Corry, a former DTI adviser, urged Labour to “get itself off the manifesto hook” and avoid having a policy ruling out privatisation of Royal Mail.