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Last Updated: Wednesday, 7 December 2005, 07:43 GMT
First class stamps to go up by 2p
A book of first class stamps
Next April 1st class stamps will cost 32p each.
Stamp prices are set to rise in April under a compromise deal between regulator Postcomm and the Royal Mail.

First class stamps would rise 2p to 32p and second class stamps by 1p to 22p, with the possibility of them rising to 36p and 25p respectively by 2010.

The Royal Mail had wanted to push stamps up to 39p and 27p to help pay for modernisation and to plug a 4bn hole in its pension fund.

Postcomm said April's rises should provide an extra 1.2bn next year.

Consumer group Postwatch said it was disappointed with what it described as a "generous settlement" for the Royal Mail.

Gregor McGregor, its chief executive, told the BBC: "With a very steep increase in prices and quality of service staying very more or less the same, it's difficult to conclude that this is going to be a value for money package."

Time for change

From 1 January, the Royal Mail will lose its 350-year monopoly of delivering letters to residential addresses.

No one should regard today's proposals as anything other than tough
Adam Crozier
Royal Mail chief executive

It is particularly worried that competitors may "cherry pick" the most profitable bits of its letter delivery service when full competition starts.

Nigel Stapleton, chairman of Postcomm, said the agreed new prices were a fair deal.

"The rises in stamp prices are substantially less than Royal Mail wanted and a little more than we planned," he said.

"Postwatch have described the proposals as generous (to Royal Mail), Royal Mail have described them as tough," Mr Stapleton told the BBC.

Postcomm said it had to take into account a larger-than-expected pensions deficit but had not softened its line on all other aspects of the report.

"Royal Mail needs to radically transform its business in order to face up to competition. They accept that," Mr Stapleton said.

'Tough proposals'

According to Postcomm, next year's rise should give the Royal Mail an extra 1.2bn a year to spend on new sorting office equipment and vehicles, and to make extra pension contributions.

The Royal Mail said it had not yet fully evaluated the impact of the new rises.

"No one should regard today's proposals as anything other than tough," said chief executive Adam Crozier.

Last month, the chairman of the Royal Mail, Allan Leighton, warned the company might go bust if it could not raise sufficient extra funds to fill a 4bn deficit in its pension fund.

That was despite the company returning to profit this year.

In April it reported full-year profits of 537m, and last month said half year profits had come in at 159m.

The latest stamp price rise announcement reflects a slight softening of the regulator's stance.

Previously, Postcomm had said that first class stamps should rise to no more than 34p by 2010.

Now it says its preferred price limit is 36p for first class and 25p for second.

Stamp prices last went up in April this year.

What the Royal Mail price rises mean for customers

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