Ofcom review finds Royal Mail prices are “affordable”OTHER NEW

Ofcom review finds Royal Mail prices are “affordable”

Tuesday, March 19th, 2013

Royal Mail’s pricing, including rate changes coming in April, is affordable for “almost all” consumers in the UK, according to a new report from industry regulator Ofcom.

The review looked at the most vulnerable sections of society and how the significant price rises seen in 2012 affected them.

Ofcom said there were “very limited circumstances” where consumers would be at risk of being unable to afford postal services. Only where consumers were on very low income but had a lot of essential mailing to do would be likely to find postal services unaffordable, it said.

The regulator also found that only a “very small proportion” of UK businesses would be unable to afford universal postal service rates.

The review came after Ofcom decided last year to remove pricing controls from most of Royal Mail’s services, leaving only Second Class letters and packets up to 2kg to have an annual price cap.

As the controls were withdrawn, Royal Mail put its retail prices up 30%, while its business mail rates increased by 11%.

This year, Royal Mail is leaving its prices unchanged for First Class and Second Class stamps for letters and large letters. From April rates for “Royal Mail Signed For” are increasing from 95p to £1.10, while prices for Royal Mail Special Delivery Guaranteed will increase slightly, depending on size and weight.

Business customers using franked mail will see prices increase in April by almost 7% for standard letters, with First Class and Second Class, rising respectively 3p to 47p and 2p to 33p.

Parcels prices are changing but alongside a reshuffle of the Royal Mail parcels formats, including introduction of a ‘small parcel’ and a ‘medium parcel’. With expectations that around 70% of current parcel volumes will fit into the small parcels category, Ofcom said consumers will see a maximum price increase of about 18% when sending parcels Second Class.

Ofcom said it considered a range of evidence and stakeholder views in assessing the affordability of Royal Mail’s current and forthcoming rates, taking account of use of postal services at Christmas.

Average spend

The regulator’s research suggested the average consumer sends seven items of mail per month, 85% letters or cards, spending £1.70 a week on postage, “very small relative to average incomes”.

The average business spend on post is about £18 per month, with 90% of small businesses spending more than three quarters of their postal spending with Royal Mail. Ofcom said many small businesses were choosing to shift at least some of their communications to non-post alternatives at the moment, and that many businesses were “willing and able” to switch at least some of their postal use to cheaper Royal Mail services, such as switching from First Class to Second Class.

Suggesting postal spending was “low” compared to turnover, Ofcom said that as with consumers, UK businesses would generally find Royal Mail services affordable.

Ofcom said the price changes applying from April 2013 were “unlikely” to affect its findings about affordability, particularly given that many of the mail rates will remain unchanged, while price changes will be seen in parcels, but most consumers send parcels infrequently.

Ofcom said Royal Mail’s new pricing structure for parcels was more reflective of operating costs, and suggested that consumers may be able to mitigate some of the price rises by smarter use of packaging.

The regulator said the small number of consumers who do currently find postage rates unaffordable would be in such financial hardship that they would also have the same concerns even if Royal Mail’s prices were lower.

Source: Post&Parcel/Ofcom

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