Watchdog gives Royal Mail backing to hike price of a stamp by up to 5p

• Royal Mail yesterday unveiled these new First Class poppy stamps, recognising the sacrifices of Armed Forces Picture: PA

The announcement by Postcomm, the mail watchdog, comes ahead of a statement today on the future of the postal network by Liberal Democrat minister Ed Davey, where he is set to face demands to build in safeguards against the closure of thousands of branches.

Mr Davey, who has insisted that no post offices will close as a result of the part-privatisation of Royal Mail, which is separate to the network, will be challenged to come up with a continental style scheme in his Postal Bill to prevent closures.

Currently, only 4,000 of the 11,500 post office branches are believed to be profitable and unlike many European countries such as Holland and Germany, there is no minimum requirement for having a post office in an area in legislation.

There are also fears that the government will fail to protect post offices in the bill because it would bring down the amount which could be made from privatisation, and this will lead to a gradual closure of branches when the government can no longer intervene.

Labour Cumbernauld, Kilsyth and Kirkintolloch MP Gregg McClymont, who is due to raise the issue, said: "When I raised this before Mr Davey described it as 'socialist over-regulation'.

"He needs to explain why it is 'socialist over-regulation' to protect post offices in legislation, but not to protect six-day deliveries and the universal single price.

"He also needs to explain how two such successful mail companies (Deutchepost and TNT] have managed to operate in 'over regulated' markets, and why Royal Mail could not do the same."

Meanwhile, Postcomm said that a 5p increase in the cost of a first-class stamp to 46p, and a 4p increase in the cost of a second-class stamp to 36p was necessary for the survival of the universal service.

The regulator said Royal Mail should have the flexibility to increase the prices it charges customers from April 2011 on average by 7 per cent, which would mean it could realise up to 280 million in additional revenues.

Royal Mail welcomed moves to give it greater freedom to compete and continue investing in modernisation, adding that no decision on stamp prices has been made.

But Consumer Focus said customers will be "extremely disappointed" at the prospect of higher stamp prices next year.Postcomm said it intended to bring in "substantial deregulation" of packets and parcels weighing more than 2kg as well as remove retail price controls from all packets and parcels weighing more than 500g, and in parts of the pre-sorted bulk mail market.

Royal Mail will also be given greater freedom to compete in the pre-sorted bulk mail market.

Postcomm chairman Nigel Stapleton said: "We welcome the development of competition in parts of the postal market and we want to ensure Royal Mail is free to compete on a level playing field with its competitors."

He added: "Our proposals form an important package of measures which need to be taken together.

"It would not be in the best interests of customers to grant Royal Mail this greater flexibility without appropriate safeguards to ensure it is properly accountable to all its customers."

Moya Greene, chief executive of the Royal Mail, said: "I am pleased that Postcomm clearly understands the need to continue to invest in Royal Mail's future and to protect the universal service.

"The current regulatory framework is just not right and what is now proposed goes some way in the right direction."