James Moore: Royal Mail may be sealing its demise with rises in prices

Outlook Talk about indecent haste. Ofcom had barely issued its press release giving Royal Mail the green light to stamp all over its customers before the deed was done. With newly acquired power to set prices in its hands, the soon-to-be-privatised company said that from the end of April the price of a first-class stamp will rise by 30 per cent to 60p, while second-class stamps will increase by 39 per cent to 50p.

The Royal Mail certainly has a problem. Delivered mail volumes have fallen by 25 per cent since 2006 when it handled 84 million letters a day while revenues are down from £6.8bn to £6.4bn and the universal delivery service is losing money. At the rate of about £2m a week.

Ofcom has accepted that the treasured "universal service", where consumers pay a fixed price for delivery anywhere in the country is under threat. And it is true that the price of a stamp has been artificially held down by more than it ought to have been. Royal Mail argues that the price of a first-class stamp in Germany equates to £1.21. In France it's £1.11.

All the same, it doesn't require an MBA (or even a GCSE in business studies) to see the flaw with the thinking that immediate huge price rises will solve its problems, particularly when fed-up consumers are feeling the pinch.

The above figures indeed suggest that increasing the price of stamps has ensured that revenues have fallen less quickly than the volume of letters. But if you increase prices by too much you run the risk of it being counter-productive. People will see sending anything through the post as a luxury and cut back sharply. The fall in revenues that results from this might not be compensated for by the sharp rise in prices. Losses will escalate.

It isn't as if the internet isn't increasingly providing alternatives. If you have a business designing ecards it might now be time to celebrate.

Royal Mail has naturally done lots of modelling that argues against this outcome. The trouble is that when businesses do modeling to see how a controversial measure might work in practice they usually get the sort of results that they want. Particularly if they hire consultants to do the modeling for them.

Ofcom and Royal Mail claim that yesterday's measures will ultimately protect the universal model. They are just as likely to herald its demise. It might not be too long before mail delivered to out-of-the-way places has to be picked up from the nearest Post Office (the network remains in state hands).

Politically, however, that is something that is too unpalatable for the actors in this particular drama, including the government waiting stage right, to admit.

j.moore@independent.co.uk

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: HR Benefits Manager

£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...

Recruitment Genius: Office Manager / Financial Services

£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...

Jemma Gent: Year End Accountant

£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...

Jemma Gent: Management Accountant

£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...

Day In a Page

War with Isis: Fears that the looming battle for Mosul will unleash 'a million refugees'

The battle for Mosul will unleash 'a million refugees'

Aid agencies prepare for vast exodus following planned Iraqi offensive against the Isis-held city, reports Patrick Cockburn
Yvette Cooper: We can't lose the election. There's too much on the line

Yvette Cooper: We can't lose the election. There's too much on the line

The shadow Home Secretary on fighting radical Islam, protecting children, and why anyone in Labour who's thinking beyond May must 'sort themselves out'
A bad week for the Greens: Leader Natalie Bennett's 'car crash' radio interview is followed by Brighton council's failure to set a budget due to infighting

It's not easy being Green

After a bad week in which its leader had a public meltdown and its only city council couldn't agree on a budget vote, what next for the alternative party? It's over to Caroline Lucas to find out
Gorillas nearly missed: BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter

Gorillas nearly missed

BBC producers didn't want to broadcast Sir David Attenborough's famed Rwandan encounter
Downton Abbey effect sees impoverished Italian nobles inspired to open their doors to paying guests for up to €650 a night

The Downton Abbey effect

Impoverished Italian nobles are opening their doors to paying guests, inspired by the TV drama
China's wild panda numbers have increased by 17% since 2003, new census reveals

China's wild panda numbers on the up

New census reveals 17% since 2003
Barbara Woodward: Britain's first female ambassador to China intends to forge strong links with the growing economic superpower

Our woman in Beijing builds a new relationship

Britain's first female ambassador to China intends to forge strong links with growing economic power
Courage is rare. True humility is even rarer. But the only British soldier to be awarded the Victoria Cross in Afghanistan has both

Courage is rare. True humility is even rarer

Beware of imitations, but the words of the soldier awarded the Victoria Cross were the real thing, says DJ Taylor
Alexander McQueen: The catwalk was a stage for the designer's astonishing and troubling vision

Alexander McQueen's astonishing vision

Ahead of a major retrospective, Alexander Fury talks to the collaborators who helped create the late designer's notorious spectacle
New BBC series savours half a century of food in Britain, from Vesta curries to nouvelle cuisine

Dinner through the decades

A new BBC series challenged Brandon Robshaw and his family to eat their way from the 1950s to the 1990s
Philippa Perry interview: The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course

Philippa Perry interview

The psychotherapist on McDonald's, fancy specs and meeting Grayson Perry on an evening course
Bill Granger recipes: Our chef recreates the exoticism of the Indonesian stir-fry

Bill Granger's Indonesian stir-fry recipes

Our chef was inspired by the south-east Asian cuisine he encountered as a teenager
Chelsea vs Tottenham: Harry Kane was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope

Harry Kane interview

The striker was at Wembley to see Spurs beat the Blues and win the Capital One Cup - now he's their great hope
The Last Word: For the good of the game: why on earth don’t we leave Fifa?

Michael Calvin's Last Word

For the good of the game: why on earth don’t we leave Fifa?
HIV pill: Scientists hail discovery of 'game-changer' that cuts the risk of infection among gay men by 86%

Scientists hail daily pill that protects against HIV infection

Breakthrough in battle against global scourge – but will the NHS pay for it?