UK business post costs set to rise

10 November 2010

10 November 2010 | Angeline Albert

The Royal Mail Group has moved a step closer to raising the cost of business mail after watchdog Postcomm said it would consider its proposal.

Royal Mail requested that the regulator relax the 2011-12 price control for one year to allow the company to reap a further £100 million in revenue. The money would result from increasing the prices it charges business customers and for giving its competitors access to its network. 

The organisation’s request to raise prices for bulk business post on average by 7 per cent from April 2011 was made last month. It followed what it described as a slump in the mail market. The proposals will be subject to a public consultation.

A statement by Postcomm said: “Postcomm is minded to accept Royal Mail’s request for additional revenue because the company has demonstrated that it will come close to fully utilising its borrowing capacity in 2011-12 and the finance-ability of the Universal Service is under serious threat.

“Postcomm is mindful of the potential negative impact that bringing forward price increases of this magnitude may have on customers and on the market, even though significant increases may have been required in 2012 given the reduction in mail volumes since the last price control review. This is an issue on which we expect interested parties to share their views when responding to Postcomm’s consultation to inform our final decision.”

Royal Mail made a £157 million operating loss in the 2009-10 financial year which it blamed on “access” mail – the letters, packets and parcels collected by its rivals but delivered by Royal Mail staff. 

Regardless of the outcome of Postcomm’s consultation, the watchdog has already granted flexibility to increase prices on stamped mail by up to 10 per cent. If Royal Mail applied this maximum price increase it would equate to a 5p increase in the cost of a first class stamp and a 4p increase in the cost of a second class stamp. This could mean price increases of up to 12 per cent across all regulated products.

Meanwhile Royal Mail has responded to reports that it had set out plans to reduce supplier payments by 20 per cent. A spokesman said: “Royal Mail is striving to get the best value for money throughout the business and we are asking our suppliers for their ideas and proposals on how we might achieve this – but we are absolutely not imposing a blanket cut on suppliers’ bills.”

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