Year: 2005

The price of a first-class stamp is set to rise from 30p to at least 36p by 2010, after Royal Mail’s regulator yesterday significantly relaxed proposed price controls for the next four years. The move follows a prolonged battle between the state-owned postal operator and the regulator over prices in the run-up to full competition in the market at the start of next month.

Postcomm conceded yesterday that “obviously the headline could signal we’ve caved in a lot”. In June, the regulator proposed capping Royal Mail’s regulated prices at 2.5 per cent below inflation. Following intense lobbying by Royal Mail – which warned the curbs would send it into a spiral of decline and possible collapse – Postcomm’s final price controls equate to a limit of only 0.1 per cent below inflation.

Nigel Stapleton, the regulator’s chairman, admitted: “Consumers could look at this and say: ‘They’ve started out tough and now gone extremely weak’.” But he insisted the changes were driven by information that emerged during the consultation, rather than any pressure from Royal Mail or its sole shareholder, the government.

Postcomm’s proposed price control for Royal Mail will allow modest increases in stamp prices to enable the company to modernise its operations, secure its universal service, serve its customers better and help plug its GBP4bn pension fund deficit. Postcomm’s final price and service quality proposals for 2006-10 will safeguard the one-price-goes-anywhere universal service, provide an unprecedented GBP1.2 billion for Royal Mail to invest in modernising its network, allow Royal Mail an average of GBP320m a year towards reducing the GBP4bn deficit in its pension fund and require Royal Mail to increase its efficiency by at least 3% per year. The customers’ contribution towards funding these initiatives will require an increase in stamp prices. Royal Mail will be able to raise first class stamp prices next year from 30p to 32p. By 2010 these prices will be capped to a maximum of 36p.

Royal Mail has indicated that it accepts the price caps proposed and its responsibility to finance its business within these constraints.

Postcomm today announced its proposals for the Price Control setting Royal Mail Letters’ prices for the next four years. The Price Control set by the regulator governs around 90% of Royal Mail revenues and determines the profit that can be generated by the Group’s GBP6 billion turnover regulated business. As Postcomm has said today, the rises in stamp prices under the latest proposals are substantially less than Royal Mail wanted. The final outcome of the Price Control process, which is expected next March following a final three month consultation, will be crucial to Royal Mail’s prospects in a deregulated market. Royal Mail Chief Executive, Adam Crozier, said: “Today’s announcement from Postcomm shows the Regulator has moved a long way from its initial stance – but no one should regard today’s proposals as anything other than tough – particularly for a business with challenges on the scale that Royal Mail faces. We need to see all the detail and assess the full impact on our business, our people and our ability to go on delivering the record high quality service that customers have seen over the past year.”