Fewer letters widen Mail's losses

The Royal Mail is sorting and delivering fewer stamped letters

A slump in the number of stamped letters being sent in the UK has seen Royal Mail's losses widen to £279m in the year to the end of March.

The company said it faced a time of "difficult challenges" after the opening up of the postal service.

The results included its first loss from its stamped letters business - which is handling about three million fewer letters each day than a year ago.

BBC business editor Robert Peston said that the results were "pretty grim".

The Mail made a loss of £10m in the 12 months running to the end of March 2007.

Price controls

The Royal Mail's 350-year monopoly ended at the start of 2006, when other licensed operators were given the right to collect and deliver mail.

The first findings of a review into the changes this week said that liberalising the UK postal service had produced "no significant benefits".

The firm hopes that the review, which is ongoing, will prompt the government and regulator to relax the price controls imposed on it.

"Some might argue that Royal Mail's interest is best served by putting out a 'we're-all-doomed' statement," said our business editor.

"That tends to be the monopolist's way - though this time it might be different."

'Real debate'

Royal Mail said that its parcel delivery businesses, GLS and Parcelforce Worldwide, had seen increased sales - though profits had been eaten into by "competitive pressures" as well as the costs of delivering more mail.

The firm had also paid about £800m into its pension scheme.

The core problem for the Royal Mail is that while it has lost business in the lucrative bulk mail collection and sorting market, it still has to uphold the universal mail delivery service.

"The universal service is a huge asset for Royal Mail and for the nation as a whole," said chief executive Adam Crozier.

"It is part of the fabric of our society and is vitally important, both to social cohesion and to the UK economy.

"But it is now in the red for the first time. It is vital that we have the opportunity for a real debate about how the universal service should be financed and sustained going forward."

Last year, Royal Mail announced a programme of changes to pay and working practices, which it said were essential to modernise the service and enable it to compete more effectively.

However, this led to a strike by Royal Mail staff and a bitter dispute which, although now resolved, is estimated to have cost Royal Mail more than £200m.