First-class post could increase to 40p, warns Consignia warns

The cost of a first-class stamp may rise to 40p and a second- class stamp to 30p if plans to increase competition in postal services are pushed through, Consignia warned yesterday.

Proposals for raising the price of stamps, which will be submitted to the regulator Postcomm next month, have been put forward by Consignia, formerly known as the Post Office, to cover the costs of losing licences for business mail under the current deregulation scheme.

As well as a 48 per cent increase in the price of a 27p first-class stamp, Consignia will propose second- class postage goes up 58 per cent from 19p. Consignia believes the increases are necessary if the company is to be able to meet its obligation to provide a universal delivery service to every household in Britain on each day of the working week. Last month Postcomm announced plans to allow competition by 1 April in the bulk mail market, which makes up nearly half of Britain's post.

The 40p and 30p estimates are based on the effects of postal competition in Sweden. A spokeswoman for Consignia said it would reluctantly hike the prices as a necessary consequence of losing business mail, the most profitable part of the service.

She said: "We are not saying we are about to put the prices up immediately. It is more a suggestion based on what we think would be required to cope with the pace of the proposed changes to deregulation and maintain a universal service."

Postcomm said Consignia could improve its profitability through increased efficiency and the regulator said it was prepared to use its power of veto to block any increases. Consignia could partly cover its costs with the £1.2bn savings it announced recently, Postcomm said. The regulator said the Swedish comparison was misleading because the watchdog there was powerless to act on prices. Consignia will formally respond to Postcomm's proposals next month and the regulator is due to publish a decision document in April.

Patricia Hewitt, the Secretary of State for Trade, has said the Government would not interfere with Postcomm's plans. But ministers are concerned at the prospect of a nationwide pay strike being threatened by the Communication Workers' Union, and many MPs want Postcomm to change or delay its plans.