Stamp prices must rise to end cross-subsidies, says Crozier

The chief executive of Royal Mail yesterday delivered the clearest warning yet that postal prices are set to rise.

The chief executive of Royal Mail yesterday delivered the clearest warning yet that postal prices are set to rise.

Adam Crozier said that the cross-subsidizing of first and second-class stamp prices had to end so that Royal Mail could offer its business customers a better deal.

Royal Mail is due to announce what level of price increases it plans at the end of next month. The indications are that the cost of a first-class stamp will rise from 28p to 29p or 30p in April.

Mr Crozier told the CBI that Britain had the lowest stamp prices in Europe but Royal Mail was losing 5p on every first-class letter sent through the post and 9p on every second-class letter. "Cross-subsidies need to stop," he said. "There is no doubt that over a period of time, stamp prices need to go up."

Under present price controls, Royal Mail must cut postal prices across its whole product range by 1 per cent a year in real terms. But within this, it can lower or raise individual prices by up to 5 per cent. The organisation has to give customers three months' notice of any increase in prices.

Mr Crozier said as competition to Royal Mail increased the "handcuffs" had to be taken off to allow it to offer keener prices to its business customers, who account for 80 per cent of all the post delivered across the country. This meant "unbundling" the web of cross-subsidies which helped keep down the price of "social mail".

The Royal Mail chief also ruled out any moves to privatise the organisation, saying it was "absolutely not on the agenda".

There has been speculation that Mr Crozier and Royal Mail's chairman Allan Leighton have been pushing the Government to agree a sale of the business but have been rebuffed by ministers.

Mr Crozier said Royal Mail was on target to achieve its three-year turnaround by making an operating profit of £400m this year. That would trigger a £160m payout to the organisation's 190,000 staff.

But he said it would take nearer to nine or 10 years to complete the transformation of Royal Mail and equip it to compete in a fully liberalised market.

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