Consignia forced to drop request to put a penny on the price of stamps

Consignia, the former Post Office, was forced into an embarrassing climb-down yesterday over its request for an inflation-busting hike in the price of stamps, but immediately sought to blame the Government for the débâcle.

In April, just days after being granted a licence to operate as a plc under a new regime, the company shocked the regulator, PostComm, with a demand that both first and second class stamps go up by 1p in October. PostComm had earlier said that it expected prices to be frozen for two years.

Consignia, which is faced with the end of its monopoly over postal services, said yesterday it had "suspended" the application to raise prices. It said this was due to uncertainty over when the Government might take away its right to receive interest payments, worth £100m a year, which come from profits paid to the state over the years.

A spokeswoman for Consignia, which is led by chief executive John Roberts, said: "Consignia's ability to justify the price increase is ... constrained until the Government has determined the future capital structure of the company."

However, industry experts pointed out that this issue was apparent at the time of the price hike application, and suggested that the company backed down when it became apparent that its request would be rejected.

Chris Webb, a spokesman for PostComm, said: "On the information Consignia has provided us, so far, we were minded not to allow it." The proposed rise would have seen a first class stamp increase from 27p to 28p and second class mail from 19p to 20p. Postwatch said this would have added £200m to postal costs, over an 18-month period, after years of deteriorating service standards.

Mr Webb dismissed Consignia's claim that it had merely "suspended" its application. "It's not what we call suspension. We would call it withdrawal. We've stopped work on it. They would need to make a fresh application if they wanted to re-visit this."

It is thought that PostComm could have formally rejected the application as early as this week, when it was due to meet to discuss the issue. In order to secure a price rise under its licence terms, Consignia has to prove that it cannot continue its universal service or that it faces a financial crisis.

Peter Carr, chairman of Postwatch, the consumer watchdog, said: "It's a mystery to me why they made this application when they made no case under the licence criteria. It stood no chance of succeeding. Their argument was all about future financial strategy."

Consignia said that it may ask for the price hike again next year.