Royal Mail boss Moya Greene has admitted brand owners could eventually face price hikes of over 20% – once the postal operator can set its own prices – just days after revealing lower than expected increases for direct mail.
Under a fierce grilling from MPs sitting on the Business, Innovation & Skills Committee, Greene revealed that Royal Mail needed to bring in an extra £250m to £300m in annual revenue to cover its costs.
And, with privatisation looming, it would also need to make a commercial return on top of that increase.
The admission is a far cry from last week’s ‘good news’ story, in which Royal Mail attempted to placate advertising mail customers with a raft of new products, supported by price rises of just 5%.
Once Ofcom lets the postal operator set its own prices, however, it will be a different story.
She told MPs: “I think we would be talking overall, if we take out the Post Office, about an increase of about 8-9% overall,” adding that a commercial return would have to be added on top. “If we look at other postal administrations that are able to access capital, I think a reasonable commercial rate of return in this business would be between 10-15%.”
Greene conceded there would “certainly be some fall off in demand” for mail as her company increased its prices. However, she insisted mail would continue to be affordable for low-income households, particularly compared to other utilities and forms of communication like the Internet.
Whether business customers will view it that favourably is a moot point, with many in the industry fearing soaring costs will speed up the move away from mail to digital activity.
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