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Business, Innovation and Skills Committee publishes report on stamp prices

2 March 2012

The Business, Innovation and Skills Committee publishes its fifteenth report of this Session which looks at Stamp Prices, focussing on the impact proposed increases in the price of stamps might have on consumers - not least vulnerable customers and SMEs - and on Royal Mail itself

Comments from the Chair

The Chair of the Committee, Adrian Bailey, commented:

"The Committee's short inquiry into the future price of stamps has been hugely valuable.

There is no doubt that market uncertainty is placing significant, additional pressures on Royal Mail and that some increase in the price of stamps is necessary.

However, this report highlights the need for Royal Mail to consider robust data on the position of vulnerable consumers and small businesses when determining the future prices of stamps.

It must also be sensitive to the possible effect on its volume of business and the need for higher prices not to operate as a disincentive against efficiency measures.

The principle of universal access underpins our mail service and must be maintained at an affordable rate."

Areas of concern

The report identifies a number of areas that continue to cause concern, some of which are highlighted below:

1. On price controls

  • The Committee does not believe that continuing with length procedures for determining prices is a practical future means of supporting Royal Mail's business.
  • The Royal Mail needs to get a much clearer grasp of the costs and profitability of its product lines.

"No compelling case was made for the continued use of price controls.

However, I was surprised at the lack of detail Royal Mail provided with regards to the cost of specific services.

A clear grasp of underlying costs should underpin any future price changes. Without that, the scale of increases being discussed becomes far harder to justify."

2. On vulnerable customers

  • The most pressing issue for Ofcom to consider is the resources available to vulnerable customers at periods of peak spending.
  • The Committee notes Royal Mail's announcement of specific protection for vulnerable consumers at Christmas time.
  • The consequences of price increases should remain a priority for Ofcom and the regulatory model should include the ability to re-open this issue if necessary.

"Although the aspiration behind Royal Mail's announcement of a one-year freeze on Christmas stamp prices for vulnerable people is to be welcomed, there are concerns about how this might work in practice.

The Committee may return to this issue in due course.

Equally important will be the need for Royal Mail to ensure wider affordability in the longer term and to nurture and sustain its customer base on the back of improved productivity."

3. On SMEs

  • The Committee is not convinced by the working hypothesis that affordability for SMEs is the same issue as for consumers.
  • Ofcom and Royal Mail should reconsider the evidence on this point

"SMEs often operate on tight margins and have completely different needs to other consumers.

Unless Ofcom and Royal Mail take account of this fact, many SMEs struggling with other cost pressures in the current economic climate may find any such price increases a real problem."

4.On efficiency savings

  • The Committee agrees that Ofcom should retain the ability to step in and regulate prices if a failure to deliver efficiency savings results in additional significant price rises.
  • The Committee feels five years would be more suitable than the seven currently being suggested and that this timeframe would provide greater incentives for rapid progress.

"Royal Mail should be looking to efficiency savings to keep downward pressure on prices."

 Image: istockphoto