The postal regulator today announced plans to give the Royal Mail greater commercial freedom to help it tackle growing competition and signalled support for higher prices which could see first class stamps increase by 5p.
Postcomm said Royal Mail will have the flexibility to increase prices on stamped mail by up to 10% in light of its decision to roll forward the price control to 2011-12.
If Royal Mail applied this maximum price increase, this would equate to a 5p increase in the cost of a first class stamp to 46p, and a 4p increase in the cost of a second class stamp to 36p.
Postcomm said it intended to bring in "substantial deregulation" of packets and parcels weighing more than two kilograms as well as remove retail price controls from all packets and parcels weighing more than 500 grams, and in parts of the pre-sorted bulk mail market.
The Royal Mail will also be given greater freedom to compete in the pre-sorted bulk mail market, where the company has lost business to competitors.
Postcomm chairman Nigel Stapleton said: "This package forms the bedrock of a much needed new, lighter-touch regulatory framework.
"We welcome the development of competition in parts of the postal market and where this is clear we want to ensure that Royal Mail is free to compete on a level playing field with its competitors.
"Our proposals form an important package of measures which need to be taken together. It would not be in the best interests of customers to grant Royal Mail this greater flexibility without appropriate safeguards to ensure it is properly accountable to all its customers, particularly in demonstrating that no unfair cross subsidies exist."
Postcomm also announced that it was minded to accept Royal Mail's request for additional revenues to help maintain the pace of its modernisation programme, required to safeguard the provision of the universal service, under which mail is delivered anywhere in the country for the same price.
The regulator said Royal Mail should have the flexibility to increase the prices it charges customers from April 2011 on average by 7%, which would mean it could realise up to £280 million in additional revenues.
Taken in conjunction with Postcomm's decision to roll forward price controls for 2011-12, this could mean price increases of up to 12% across all regulated products, said the regulator.
Mr Stapleton said: "There is broad consensus that there is a risk to the universal service unless Royal Mail quickly becomes a lot more efficient.
"To help fund Royal Mail's modernisation, Postcomm has allowed Royal Mail to increase the prices of stamped mail by double the rate of inflation over the past five years.
"Postcomm therefore welcomes Royal Mail's decision to complete its modernisation programme as fast as possible but regrets that the company is unable to do so without making further demands on its customers."