Royal Mail has increased the price of first and second-class stamps by 14p to record highs, after it was given freedom to set its own prices as it heads towards privatisation.
A first-class stamp will now cost 60p, with the slower second class service priced at 50p from April 30, the UK’s state-owned postal service announced on Tuesday.
The price rises come after the core letter service lost £1bn over the past four years. As consumers and businesses increasingly choose email over post, the number of letters posted has dropped from 84m a day six years ago to 59m today.
Moya Greene, Royal Mail chief executive, said that without the price rise the service was “at risk”.
“Royal Mail provides one of the highest quality postal services in Europe for among the lowest prices for both consumers and business. That service is under threat from declining volume, e-substitution and ever increasing competition,” she said.
Ofcom, the postal regulator, said price controls had “failed” to deliver on the goals of efficiency and that the universal postal service was “approaching a point where it was no longer financially sustainable”.
But the regulator said it had put in place safeguards to protect consumers, including a cap of 55p on the price of second class stamps for the next seven years and a new regulatory regime to monitor the Royal Mail’s efficiency and affordability.
The rising cost of post would be an additional cost for business, especially small and medium-sized enterprises, the Forum of Private Business said.
“We think these changes are bad for business and will ultimately cost small firms – the bread and butter users of the postal service – far more to send items via first and to a lesser extent second class in the years ahead,” Phil Orford said.
The business department said: “Price rises are never welcome. However, ministers are clear that the top priority is to protect the universal service on which people rely.”
The coalition government is trying to put the company on a surer financial footing in preparation for privatisation. It aims to to begin the process by selling or floating at least a part of the business as early as autumn 2013.
Analysts believe the service could be worth up to £3bn-£4bn, which would be Britain’s most ambitious privatisation since John Major’s government sold the railways in the 1990s.
This month, the government agreed to take on Royal Mail’s pension fund, freeing the service from its estimated £9.5bn pension deficit and writing off about £1bn of the company’s £1.7bn debt. The European Commission has now approved the plan.
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