Royal Mail could have freedom to set stamp prices

[TrueBlueTerrier]

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The Royal Mail could be given the freedom to set its own stamp prices, allowing the cost of sending a letter to spiral upwards, under a proposal being put forward by the industry regulator.

Any move to give Royal Mail the freedom to set its own prices would be controversial. It comes as the company prepares to increase the price of stamps by 12 per cent next week, a jump three times the rate of inflation.

A first class stamp will climb from 41p to 46p

However, setting its own prices would allow the company to bolster its faltering finances, which have been hit by consumers and businesses switching to email and a huge pension deficit. The company estimates it makes a loss of 6.4p on every stamped letter that goes through its network.

Currently, the price of a first and second stamp is strictly controlled by Postcomm, the industry regulator, as part of what is known as ex ante regulation. This means that Postcomm sets a framework for prices, using inflation as a benchmark. Royal Mail then needs to submit its proposal for stamp prices which falls within that framework.

Postcomm, in a consultation document published late on Friday night, has suggested that one option is to remove this ex ante regulation. Instead, Royal Mail would set its own prices – and it would be up to a consumer body or rival to step in to complain, meaning Postcomm would intervene and regulate only after the company had set prices.

A statement, published alongside the document, said: "This consultation takes place in a context of unprecedented volume decline in the postal sector. The volume of mail processed by Royal Mail has fallen by 20 per cent since the current price control was implemented in 2006 and this trend is expected to continue.

"As a result Royal Mail’s finances are weak. Even if Royal Mail’s historic pension deficit is assumed by the government, as proposed by the Postal Services Bill 2010 currently before Parliament, it still needs to improve its cash flow from its revenue from customers significantly to cover its cash costs, and for the universal service to be sustainable, it is vital that efficiency is improved.

"In that context, there is a fundamental question over the role of regulation and whether controls of the kind that we have employed up to now remain suitable."

A spokesman for Postcomm said that the removal of the regulatory framework was its "least preferred option", but "it would be unrealistic not to offer it as an option in any consultation".

Consumer Focus, the official postal watchdog, said: "We need to study this consultation. But it will undoubtedly raise concerns with consumers about the future of the Royal Mail universal service and its prices."

Any regulatory change would take place from next year and come on top of substantial price increases this year, allowed under the current system. On Monday the price of sending a first-class basic letter will climb from 41p to 46p, a 12 per cent increase, three-times greater than the level of inflation.

A second class stamp will increase by 4p to 36p, a 12.5 per cent jump.

Because the vast majority of stamps sold by the Royal Mail are printed with just 1st or 2nd, and not their monetary value, it is possible to stock up on stamps before the price increases take effect.

Paul Green at Saga, the organisation that represents the over-50s, said: "Many of our members are vary savvy, and I expect to see them queuing up this weekend to buy books of a 100 stamps.
"The savings many not be great, but making £5 here or there is certainly worth the bother for many smart consumers."

Postcomm has already, under pressure from Royal Mail, loosened the regulatory reins on the company, allowing it last year to remove retail price controls from all packets and parcels weighing more than 500 grams, and in parts of the presorted bulk mail market.

The regulator has argued that the majority of consumers are prepared to make compromises over the price of stamps in return for keeping the universal service, which ensures that letters cost the same to post whoever the recipient lives in the country, and that deliveries are made six days a week.

The consultation will run for two months, and Ofcom, which is expected to take over the duties of Postcomm, will publish final proposals on the regulatory framework in the autumn 2011.

[Wessex]

What might solve the problem would be for Royal Mail to set their own access prices lol
Prices for the public have to go up to pay for the USO since bulk mail which used to subsidise it has been given away as a free cash gift by the Great British Public via their elected representatives.

If Royal Mail are losing 6p on stamped items and 2 p on dsa items what the hell are they making money on ?

Perhaps they are secretly draining our lifeforce via park n loop, bottling it and selling it the Chinese.

[oypostie]

The volume of mail processed by Royal Mail has fallen by 20 per cent since the current price control was implemented in 2006

What happened to the 10% a year then

[dvbuk55]

If privatisation was sex, then what the regulator has suggested is definitely foreplay. Here is the blueprint for any private company to set their own agenda for pricing in whatever manner they choose......my favourite would be a fixed charge and then a POD charge on top. One thing's for sure the public are going to get a rude awakening. I'll just bet there are privateers out there at this very minute looking at how much they can legitimately or most likely otherwise screw out of joe public.