Price rise saves Royal Mail

Royal Mail will be saved from possible financial ruin this week when its regulator will allow price increases on first and second-class stamps.

The 1p rise will generate an extra £180m a year for Royal Mail, which is losing £1.1m a day, preventing it from going into administration.

Earlier this month the Department of Trade and Industry (DTI) warned postal regulator Postcomm that without the increases Royal Mail could not pay back government loans of £1bn. Privately, the DTI has admitted that administration is a "real possibility".

Postcomm, chaired by Graham Corbett, originally wanted Royal Mail to raise the price of a first-class stamp to 28p and second-class to 20p. However, the 1p increases were conditional on Royal Mail capping future price rises at 2.5 per cent below retail inflation over three years.

But Royal Mail chairman Allan Leighton accused the regulator of "giving with one hand and grabbing even more back with the other".

Postcomm is due to make a final ruling next week. An informed source revealed the regulator will allow the price rises with fewer strings attached. "Postcomm has softened enough to make Leighton happy," it said.

Royal Mail will be given 28 days to decide whether to accept the revised proposals. If it agrees, it will trigger a plan to restructure Royal Mail under new chief executive Adam Crozier. This could see up to 32,000 redundancies – 16 per cent of the workforce.

The DTI and Postcomm refused to comment. A Royal Mail spokesman said: "The key question for us is: if Postcomm has shifted ground, then by how much?"