Royal Mail hit with £11.7m fine for late and lost post

Royal Mail has reacted with anger after being hit with a £11.7m fine for losing post, causing a row that could end in the High Court.

Postcomm, the watchdog, imposed the biggest fine the industry has ever seen yesterday for what it called "serious breaches" of Royal Mail's duty to protect the post.

In the last year 14.6 million letters and parcels were lost, stolen or damaged - a small fraction of the 21 billion items handled. Postcomm chairman, Nigel Stapleton, said: "Customers are entitled to expect that when they post mail it will reach its destination."

Royal Mail is furious about the punishment, which it claims is "unfair, has no basis in logic and does not follow Postcomm's own regulatory guidelines".

It has 28 days to appeal, after which it intends to seek a judicial review in the High Court. A court battle will only be avoided if the watchdog backs down, something that seemed improbable yesterday.

Some industry insiders are shocked at the size of the fine, noting that Thames Trains was docked just £2m for the 1999 Paddington rail disaster, which saw 31 dead and 400 injured.

Royal Mail provides figures on its failings to the watchdog, based on reports of missing mail from customers and its own investigations. It made profit of £537m last year on turnover of £96bn. The watchdog notes that customers paid £4.2m for stamps on mail that either never arrived or was damaged in transit.

Royal Mail had already paid £13.6m in compensation for loss and damage suffered by customers, a fact that Postcomm says it took into account.

If Royal Mail loses the battle pays the money, it will go to the Treasury, rather than towards improving the post service.

Royal Mail and Postcomm are at odds over how many of the missing letters are lost and how many stolen.

The watchdog claims that Royal Mail has inadequate security and doesn't vet staff properly, while Royal Mail says that most of the stolen mail is the result of organised criminal activity by gangs that target vans or postmen.

It caught and prosecuted 394 employees for stealing mail last year from a 20,000-strong workforce.

Royal Mail lost its monopoly on post deliveries last year as the sector was opened up to competition and there was speculation yesterday that several leading companies are poised to defect from Royal Mail, handing the job of delivering post to private contractors.

A spokesman refused to comment on the moves of individual customers, but points out that no other service currently covers every address in the UK, meaning that the Royal Mail will remain involved in most deliveries.