First class stamp prices are set to rise by 2p to 32p next April under plans unveiled by the postal regulator today.
Second class stamps will increase by 1p to 22p as part of long-awaited proposals to work out the future financing of Royal Mail as it deals with increased competition.
Postcomm said it wanted prices to be capped at 36p for first class and 25p for second class stamps by 2010 if its proposals are accepted.
The Royal Mail, which has been pressing to raise the price of a first class stamp to 39p and second class to 27p, described the proposals as "tough". Stamp price rises were substantially less than the organisation wanted.
Postcomm said its plans would allow modest increases in stamp prices to enable the Royal Mail to modernise its operations, secure the nationwide delivery service and help to plug its £4 billion pension fund deficit.
The money raised by the higher stamp prices would provoke an "unprecedented" £1.2 billion for Royal Mail to invest in modernising its network and allow an average of £320 million a year to be spent on reducing the deficit in the pension fund.
Postcomm said the Royal Mail had indicated it accepted the price caps and its responsibility to finance its business within these constraints.
But the Royal Mail said in a statement that it was not yet possible to fully access the impact of the proposals.
Chief executive Adam Crozier said: "The regulator has moved a long way from its initial stance but no one should regard today's proposals as anything other than tough, particularly for a business with challenges on the scale that Royal Mail faces.
"We need to see all the detail and access the full impact on our business, our people and our ability to go on delivering the record high quality service that customers have seen over the past year."
Postcomm chairman Nigel Stapleton said the proposals offered a "fair deal" for customers, the Royal Mail and companies entering the industry when full competition begins next month.
He said Postcomm's initial proposals had been changed in recent months to allow Royal Mail more money for pensions and investment as well as protecting the organisation against risk if mail volumes or pension assets changed significantly.
"Our proposals challenge Royal Mail to push harder for greater efficiency and to bring about a radical transformation in its letters business.
"The rises in stamp prices are substantially less than Royal Mail wanted and a little more than we planned.
"But without a contribution from customers, Royal Mail's weak financial position, brought on by its large pension deficit, would have put its ability to provide the universal service at risk."Reuse content