Royal Mail plan to put up prices angers watchdog

Royal Mail clashed with consumer watchdogs yesterday after claiming that it needed to increase the cost of posting letters in order to offset a £247m loss on its domestic mail operations.

Royal Mail clashed with consumer watchdogs yesterday after claiming that it needed to increase the cost of posting letters in order to offset a £247m loss on its domestic mail operations.

The company said that losses on mail posted through pillar boxes such as personal letters, greetings cards and stamped mail sent out by small businesses amounted to 5p on every first class letter and 9p on second class letters.

Adam Crozier, Royal Mail's chief executive, said that the only reason the group had been able to post a £220m operating profit last year on day-to-day operations was because of the profits generated from bulk and franked mail. But he said that as this profitable part of the business was opened to more and more competition, Royal Mail would find it harder to maintain its one-price-goes-anywhere universal service. "Royal Mail can't keep sustaining heavy losses on stamped mail as competition intensifies. We are determined to charge a fair price - and that means having prices much more related to the actual cost to Royal Mail of providing the service," he said.

However, Postwatch accused the company of selectively publishing bad figures in order to put pressure on the industry regulator Postcomm to support a move towards sized-based pricing of letters. This could result in the cost of posting birthday cards rising by almost 70 per cent.

Peter Carr, the chairman of Postwatch, said: "To quote the losses of domestic mail disregards the opportunity to improve profits by reducing costs. Royal Mail should have used today's publication to highlight that the profit from the universal service products has increased from £9m in 2002 to £322m in 2004."

The figures are contained in Royal Mail's audited regulatory accounts which it supplies to Postcomm.

Under proposals put to Postcomm earlier this year, Royal Mail wants to start charging more for bulky and outsized items of mail such as large birthday cards, CDs and rolls of film.

At present, it costs a flat 28p to send any item weighing less than 60 grams. From next September Royal Mail wants to introduce three new price categories. Ordinary-sized letters up to 100 grams in weight would cost 28p but large letters within that weight category would start at 46p. However, the cost of posting large letters and packets weighing more than 100 grams would come down.

This is because Royal Mail has to keep its overall price rises capped at 1 per cent below inflation under a formula imposed by the regulator.

The new sized-based pricing plan, the biggest shake-up in postal prices since the introduction of the penny black, has met fierce resistance from the greetings card industry and also from charities and age concern groups who fear it will be confusing for elderly customers used to putting a 28p stamp on all their letters.

Mr Crozier said that more than 80 per cent of all mail it handled was under 100 grams and in this category, its losses last year were £158m. He added that Royal Mail's prices were currently the cheapest in Europe with a first class letter costing 45p to post in Spain, 78p in France, 94p in the Netherlands and 112p in Italy compared with 28p here.