Regulator backs stamp price rise

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Second class stamp prices would still be affordable if they increase from the current 36p to as much as 55p, the postal regulator has said.

Stuart McIntosh, Ofcom's group director of competition, told the Business Select Committee that the average family spent less than 50p a week on mail services, so raising the price of second class stamps to a range between 45p and 55p would not suggest the service would be unaffordable.

Royal Mail has been losing hundreds of millions of pounds on its mail operations and its finances remained "very serious", he said.

Stamp prices across Europe tended to be higher than in the UK, Mr McIntosh said.

Royal Mail, which will be questioned by the MPs next week, said in a statement it was awaiting the outcome of Ofcom's consultation on its proposals for future regulation of UK postal services before announcing stamp prices for 2012, adding that no final decisions have been made.

"We know how hard it is for businesses when the economy is as tough as it is now. Mail volumes have fallen by 25% since 2006 and the regulatory regime has meant that prices have been artificially low.

"Royal Mail has made a loss on its core mails, including packet, activities of almost £1 billion over the last four financial years.

"That is not sustainable for any business so we need to better align prices with the cost of providing our services. Since 2006, Royal Mail's cashflows have been £3 billion less than anticipated.

"There has been significant under-investment in Royal Mail for a number of years, including in crucial areas like IT where we really lag behind our main competitors.

"We need to make a commercial rate of return so that we can invest in the business for the benefit of all our customers."