Price of first class stamp increases to 60p

The price rise, which comes into force on 30 April, marks the biggest annual increase in the cost of stamps in percentage terms since 1975. It was accompanied by a hike in the cost of second-class stamps from 36p to 50p. The increases, which were condemned by opposition politicians and consumer groups, were announced yesterday almost immediately after Ofcom, the postal regulator, decided to remove its cap on what Royal Mail is entitled to charge for first-class stamps.

The price of second-class stamps will still be subjected to Ofcom regulation with the rise to 50p remaining 5p below the maximum price permitted by the regulator. Over the next seven years, the price of second-class stamps will be capped at 55p, but this could rise with inflation.

In 1975, the cost of first and second-class stamps rose by 55 per cent, while there was a 66 per cent increase in 1940. Yesterday’s announcement marked a 30 per cent rise for first-class stamps and a 36 per cent increase for second-class.

Robert Hammond, director of postal policy and regulation at watchdog Consumer Focus, said: ‘This is not great news for consumers. I doubt anyone is going to think about the challenges facing Royal Mail when they are paying 60p for a first-class stamp.”

Ferocious competition from modern methods of communication, and the potential privatisation of Royal Mail, were cited yesterday as one reason why Britain’s postal service is undergoing its most dramatic changes since the English social reformer, Sir Rowland Hill, invented the first adhesive stamp in 1837.

Royal Mail has seen postal volumes fall by 25 per cent since 2006 as electronic and text messaging volumes have risen. They are expected to continue to fall by between 25 to 40 per cent in the next five years.

Last year, Royal Mail’s letters business, from which it gets more than two-thirds of its revenue, lost £120 million. The move to allow the Royal Mail to set its prices was seen as another significant step on the road to privatisation of the organisation.

Ofcom said that Royal Mail has been given the power to set its own first-class stamp prices to make it more commercial and “safeguard” the universal postage service.

Moya Greene, the chief executive of Royal Mail, said she would have “avoided” raising prices if she could have. However she said that the postal service in the UK has been in “peril” for a number of years.

The Royal Mail has lost almost £1 billion over the past four financial years. Ms Greene refused to speculate on future prices.

She said: “I wouldn’t want to get into speculation about that. If you look at the price of a single trip on a bus, or a chocolate bar, or the price of a newspaper we are clearly affordable. I don’t need to charge £1 now.” She argued that there was not an “affordability issue” with stamps because the average household spent 50p a week on stamps compared with £10.50 on telecoms and internet.

Ms Greene said that it could be sold by the second quarter of 2014, following the passage through parliament of the Postal Services Act 2011, which allows for large-scale reform.

The government wants to sell or float up to 90 per cent of the business, with a 10 per cent stake earmarked for employees.

Ms Greene said: “I don’t think it matters who owns the Royal Mail, whether it is Her Majesty’s Government or a group of pension funds or retail investors. The thing is this. We can’t be successful if our stamps are priced too low, we don’t have access to capital, we are balance sheet insolvent, or our revenues are capped so we are unable to compete. We have secured the future of the service.”

This weekend, the Royal Mail will go through a series of changes that pave the way for a flotation. Royal Mail will formally separate from the Post Office network, which will stay in government ownership. Its £9.5bn pension deficit will be handed over to the state. Those moves, along with yesterday’s price deregulation, are key steps on the way to flotation.

Ofcom’s director of competition, Stuart McIntosh, said the deregulation of first-class stamps was necessary to guarantee the universal postal service provision, a Brussels-enforced mandate known as the Universal Service Obligation (USO) that requires the delivery of a postal service to any address in the country six days a week.

He said: “The mail services that we have benefited from over decades and centuries are fundamentally at risk.”

Mr McIntosh said competition from mobile phones, e-mail and other postal providers such as TNT UK would help prevent the Royal Mail from abusing deregulation, as well the price constraints posed by the second-class stamp ceiling.

In attempt to assure the public that the price hike would not affect those struggling for cash, Royal Mail promised that the cost of posting Christmas cards in 2012 will be the same as last year for those on Pension Credit and Employment and Support Allowance or Incapacity Benefit. They will be able to buy up to 36 stamps in one purchase from any Post Office branch from 6 November until the last posting dates before Christmas.

Even so, consumer groups, trade unions and politicians were angered by the rises.

Mr Hammond said: “Unfortunately, the economics of Royal Mail meant that something had to give to maintain the Universal Service Obligation (USO). This is a very significant increase in the price of an essential service and those consumers who continue to use it will look much harder at the value for money and quality of service that they get.”

Shadow postal affairs minister Ian Murray said: “An increase in the price of stamps will hit the elderly, vulnerable and millions of people who rely on the postal service, including small businesses and charities.”

Billy Hayes, general secretary of the Communication Workers Union, said: “Today’s announcement is the natural progression towards full competition and privatisation of postal services where customers pay more and efficiencies are sought in the interests of profit not services.

“Commercial freedoms may be good for the company but it could come at the cost of affordability and access to services for many. Price rises are the inevitable result of competition.”

Although none of us likes to see such a steep increase in the price of a service, it is hard to argue against the logic of the regulator’s decision and Royal Mail’s response. Page 28