Phil Orford: A stamp of disapproval for mail price increase

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MASSIVE increases to the price of posting mail in the UK will harm small business and hasten the demise of the Royal Mail.

That’s certainly the opinion here at the Forum of Private Business. And it’s also the stark warning we have given to the industry regulator Ofcom in a letter which we have submitted as part of their ongoing consultation into allowing greater price raising freedoms for the Royal Mail.

Royal Mail bosses want Ofcom to give up its powers which allow it to cap the price of a stamp. As regulator, Ofcom can and have vetoed price increases in the past which they’ve deemed unfair and excessive.

But if Royal Mail gets its way, it would allow bosses to go ahead with radical price hikes which could see the price of a second class stamp rocket by as much as 50 per cent. That’s potentially a second class stamp costing 55p as opposed to 36p currently – a huge increase by anyone’s standards.

Imagine the outcry if the Government increased fuel duty by such a margin?

Other proposals being considered are no-limit increases for the price of first class stamps until as far ahead as 2018, again not requiring of Ofcom approval as opposed to current rules.

Royal Mail is in trouble – it’s not a trade secret. Its letter business last year made a loss of £120m, and the service needs major reforms to make it fit for purpose. The increase in the cost of stamps, say the firm’s executives, will allow it to become profitable again. But at what cost to everyone else?

And what kind of improvements in service can we expect to see if postal charges go skyward? Will the Royal Mail be reintroducing second post – a concept few under the age of 30 will be familiar? Will it begin treating first class post posted on weekends as genuine first class items rather than second class as is the case now? And will it be lauding first class post as next day delivery?

Answer for all three – very unlikely.

The Royal Mail wants to increase costs purely to balance its budget, and has yet to outline how it plans to improve the level of service for customers. And just who are those customers? Well, we know that business is one of the biggest client areas of the Royal Mail today.

While the advent of e-mail has seen the service haemorrhage customers as private individuals ditch “snail mail” for a significantly cheaper, more reliable form of communication, not all businesses have had this luxury. The hard copy, “letter in the hand” format is all too often the only choice for many firms.

So it’s clear, where substantial price increases in the cost of sending letters or packages from A to B will be felt the sharpest. That’s why we’ve told Ofcom that agreeing to Royal Mail’s demands would simply create another cost barrier for small firms who can ill afford further price hikes.

While we understand Royal Mail is currently a loss-making organisation and action needs to be taken to address this, we don’t believe constant price rises are the way to tackle the issue.

Constantly increasing prices is no way to reform a service, and could actually reduce the number of customers using the postal service. Royal Mail needs to improve its efficiency, but not by crude price hikes.

The results of our latest quarterly referendum survey revealed that 97 per cent of the small businesses surveyed have seen the cost of doing business rise over the past year. Rises in postage costs, would stretch budgets still further.

In order to reduce costs, businesses would be forced to look to alternative providers, or reduce the amount of mail they send, which in turn would result in even less business for Royal Mail. The chances are this would create a self-defeating spiral of decline.

The latest price increases being proposed by Royal Mail come on the back of a 12 per cent rise in 2011, and is therefore an unashamed attempt to make small business bear the cost of Royal Mail reform.

These rises are already hurting businesses which are struggling due to the tough economic climate. The removal of Ofcom powers would be the loss of an important safety net.

And is there really sufficient evidence to suggest further price rises will help the organisation in the long term? Considering the price rises of the past few years which have not alleviated Royal Mail’s existing problems, the answer is no.

• Phil Orford is chief executive of the Forum of Private Business.