Royal Mail seeks stamp price rise

The price of UK stamps is closely controlled by the industry regulator

Royal Mail is asking for a six pence increase in the price of UK stamps to stem losses and ensure its survival.

The changes are part of proposals put to regulator Postcomm this week. Royal Mail also wants to change the rules governing franked business mail.

At present the Royal Mail is losing 6p on each stamped letter it delivers, and is facing increased competition.

Should the price increases be agreed, then a first-class stamp would cost 38p and a second-class stamp 29p.

Timeframe

What is not clear, however, is when the Royal Mail would implement the price increases, and what effect they would have on the current pricing agreement with Postcomm that runs until 2010, the BBC's business editor Robert Peston said.

Under that deal, the Royal Mail can still increase stamp prices.

Postcomm has been a vicious regulator... it has been holding prices down Ian Senior, Postal economist

The changes would have a significant effect on the firm's universal service obligation (USO), which dictates that a first or second class stamp must ensure a letter is delivered to all addresses throughout the UK.

The USO was reviewed by the regulator last year and is in place until 2010.

According to the Royal Mail, it can no longer make up the shortfall in its consumer service by charging businesses more as the higher rates would lead to it losing out to rivals.

The Royal Mail also wants an end to restrictions on profitable bulk business mail, such as junk mail.

"This is not scaremongering in any shape or form," the Financial Times reported Royal Mail's chief executive, Adam Crozier, as saying.

Tough stance

However, postal economist Ian Senior said that the move by Royal Mail was "cage rattling" and only the opening shots in a bigger war.

Mr Senior told the BBC that the increase in stamp price would generate about £1.2bn in extra annual revenue for Royal Mail.

The majority of that cash would then be used to offer cheaper services to large business clients, he said.

He added that it was unlikely that Postcomm would approve any stamp price increase.

"Postcomm has been a vicious regulator," Mr Senior said. "It has been holding prices down and profits for Royal Mail have been far less than they should have been."