Royal Mail to raise price of First Class stamp on standard letter to £0.60 from £0.46, Second Class stamp to £0.50 from £0.36, effective April 30, reports loss of nearly £1B over last four financial years

Kendall Sinclair

ROMFORD, England , March 28, 2012 (press release) – Royal Mail announces annual stamp prices rise for April 2012

We know how hard it is for households and businesses when our economy is as tough as it is now. We have thought very carefully about the impact on our customers and on our own business, before deciding to raise our prices.
Following Ofcom’s decision today about a new regulatory framework, Royal Mail is announcing that from April 30, the price of a First Class stamp for a standard letter will rise from 46p to 60p. The price of a Second Class stamp for a standard letter will increase from 36p to 50p.
Ofcom has said Royal Mail’s financial position puts the viability of the Universal Service at severe risk. Royal Mail has made a loss on its core mails, including packets, activities of almost £1 billion over the last four financial years. Price increases are therefore needed to put the Universal Service on a sound, sustainable and secure basis.
Postal service standards in the UK are high and increases are needed to pay for them. Royal Mail’s next day target of 93% is the highest for any major EU country. We also deliver six days a week while many EU countries only provide a five day delivery service.
For low income households, Royal Mail will keep stamps for letters for Christmas 2012 at the same price as in 2011. Households on pension credit and employment and support allowance (or incapacity benefit) will be eligible. They will be able to buy up to three books of 12 stamps – 36 stamps in total – in one purchase from any of the 11,801 Post Office branches from 6 November until the last posting dates before Christmas

Following Ofcom’s decision today about a new regulatory framework, Royal Mail is announcing that from April 30, the price for a First Class stamp for a standard letter will rise from 46p to 60p. The price for a Second Class stamp for a standard letter will increase from 36p to 50p. The cost of a Large Letter stamp up to 100 grams will rise from 75p to 90p for First Class and from 58p to 69p for Second Class. (Other products, including packets, whose prices are increasing are listed in Editor’s Notes.)

Royal Mail broadly welcomes the new regulatory framework announcement by Ofcom today. Royal Mail will now review the decision in full. We will also respond to Ofcom's consultation on an extended safeguard cap covering Second Class small parcels and large letters up to 2kg in weight.

The Group has been stressing the need for a very different regulatory framework, as the old approach - including very extensive price controls - accelerated the significant rate of decline in Royal Mail’s finances.

Moya Greene, CEO, said: “We know how hard it is for households and businesses when our economy is as tough as it is now. No-one likes to raise prices in the current economic climate but, regretfully, we have no option.

“Royal Mail provides one of the highest quality postal services in Europe for amongst the lowest prices for both consumers and business. That service is under threat from declining volume, e-substitution and ever increasing competition. Because of these pressures Royal Mail has lost £1 billion over the last four years; the sustainability of the service is now at risk. Price increases are needed to return the Universal Service to sustainability.”

Viability of the Universal Service at risk

Ofcom has said there is a severe risk to the Universal Service, price controls have failed and there is a need for material price increases. Over the last four years, Royal Mail has made a loss in its core mails business, including packets, of almost £1 billion over the last four financial years. The significant deterioration in Royal Mail’s finances can be attributed to a number of factors. Firstly, the previous regulatory regime kept prices artificially low. Secondly, mail volumes fell by 25 per cent in six years and volumes are expected to decline by about 5% a year for the foreseeable future. Thirdly, less mail is being delivered to more addresses. The number of addresses has increased from 27 million in 2003 to 29 million today.

UK Service Standards are high and need to be paid for

Service standards in the UK are appreciably higher than in many other EU countries. Royal Mail is required to deliver six days a week; the EU minimum obligation is five days. Royal Mail’s 93% next day delivery target is also the highest for any major European country, e.g. France’s minimum standard is 84%. A high, fixed cost network (currently costing £6.7 billion a year) is required to maintain this high quality service. Irrespective of the number of items delivered every day, Royal Mail has to maintain a network on the basis that it delivers to 29 million addresses six days a week. Price increases are needed to sustain this high quality service.

A focus on efficiency

Royal Mail is working hard to reduce its costs and continues to improve its efficiency. This is a painful process of ongoing change for our people. Over the past decade, Royal Mail has seen 50,000 of our people leave the company. Sadly, reductions continue at both the managerial and operations levels. We must absorb inevitable cost increases in fuel and energy, and the number of addresses requiring our service six days a week goes up by 300,000 every year. The number of letters handled by the Royal Mail continues to decline.

With traffic changing from letters to parcels, and in the absence of capital to improve technology, unlike other competitors, Royal Mail’s cost structure must reflect the reality of our duty to serve all 29 million addresses every day.

Our programme of modernisation is one of the largest of its kind currently underway in the UK. Every process we are involved in – collecting, transporting, sorting and delivering mail – is being changed.

Our prices are amongst the best value in Europe

For consumers, UK stamp prices are amongst the best value in the EU; they will remain so. The key points are:

Royal Mail charges the same price per letter up to 100 grams. Other EU operators often charge three different prices up to this weight step.
In the 51g to 100g weight band, the UK’s new 50p Second Class stamp is the lowest in Europe. For items between 21g and 50g, our 50p price is the second lowest. Less than half of EU countries actually offer a Second Class service.
In the 51g to 100g bracket, the new 60p price for a First Class stamp will be the fifth lowest in Europe.

UK businesses that use meters also benefit from good value prices and discounts of up to 38% on stamp prices. The prices of Royal Mail meter services used by businesses have lagged behind inflation for many years. After these increases, Meter First Class letter prices will be around 4% lower in real terms than the early 1980s. Meter Second Class prices will be around 13% lower in real terms.

Helping low income households

Royal Mail will have a scheme this Christmas to enable people on low incomes to buy up to a total of 36 First or Second Class Stamps in one purchase at 2011 prices – 46p for First Class and 36p for Second Class. The scheme will launch on November 6 and will be in place until the last posting date before Christmas for First Class stamps.

While postage accounts for a very modest proportion of household expenditure, we know that there are some people for whom any price rise is difficult. People on pension credit and employment and support allowance (or incapacity benefit) are eligible for participation in the Christmas scheme. Around 5 million people are eligible under these criteria.

Eligible people will be able to buy up to three books of 12 stamps – 36 stamps in total – in one purchase from any of the 11,801 Post Office branches. To receive the stamps at 2011 prices, people will need to provide evidence that they are in receipt of benefits, e.g. the Annual Uprating letter or the Award Notice letter from the DWP. Royal Mail will write to every UK household later in the year explaining the scheme and how it works.

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