Royal Mail to set its own prices

Ofcom has kicked off its governance of the postal sector with a controversial plan to give Royal Mail the power to set the price of business and bulk mail as well as first and some second class post.
The new regulator, which took over from the now defunct Postcomm at the beginning of this month, said a new approach to regulation was needed because of huge changes in the industry, including a big decline in the number of letters posted. It has been branded the “biggest shake-up to the mail market we have ever seen” by national consumer watchdog Consumer Focus.
The move raises the prospect of business mailers continuing to shore up the Universal Service, despite the fact bulk mail – most commonly used for direct mail – is no longer part of the scheme.
Late last year the Government was warned by Mail Users Association boss Alan Halfacre to cut back the Universal Service or risk a mass exodus of business mailers fed up with footing the bill.
Royal Mail currently has to seek permission from the regulator to change prices. The regulator said its proposals, which are subject to an 11-week consultation, were aimed at protecting the Universal Service obligation. Without regulatory changes, there was a risk that the service would not be delivered to the same standard, it warned.
Ofcom said it wanted to cap the price of second class stamps to between 45p and 55p to offer protection against big price rises.
Ofcom’s group director of competition, Stuart McIntosh, said: “The Universal Service is significant and highly valued by the public. However, unless changes are made to the regulation of post, this service is under threat. Ofcom’s proposals are designed to safeguard the UK’s postal service, ensuring it is sustainable, affordable and high-quality, to the end of the decade and beyond.”
According to last year’s Hooper Report on the postal industry, mail volumes are expected to continue to decline globally by between 25% and 40% in the next five years as businesses and residential customers make increasing use of online services and email.
Royal Mail’s letters business made a loss of £120m in 2010/11 and has a “significant” pension deficit, while estimates put the cost of meeting the USO at more than £6bn a year, said Ofcom.

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