Royal Mail: Saturday Deliveries and Stamp Prices
Ofcom are about to consult the public and the postal industry about whether to recommend to ministers that Royal Mail should no longer be required to deliver on Saturdays. This has triggered comments on the related issue of stamp prices. This newsletter provides some background information and comment.
Here is what has happened to (inflation adjusted) stamp prices since 1st and 2nd class deliveries were introduced in 1968. In cash terms, 1st class stamps now cost £1.25, up from £0.27 in 2000. The equivalent figures for 2nd class are £0.75 and £0.19.
In short, stamp prices were kept low until the late 2000s. This was initially because ministers were reluctant to increase the prices charged by the state-owned company. Royal Mail was then given a good deal of commercial freedom kept in check by several years of pretty tough regulation from 2000 onwards. However …
Mail volumes began to fall, partly because both individual and business customers switched to email and social media, whilst many business customers also went digital, sometimes spurred by postal strikes which disrupted cash flow. Electronic billing and direct debits collect money much more quickly (and less expensively) than by sending paper bills and banking cheques.
Mail volumes have now fallen from around 90 million items a day to around 40 million, though some of the slack has been taken up by parcel delivery. And more efficient competitors now process much of the collection and distribution of bulk (business & charity) mail leaving only ‘the final mile’ to Royal Mail.
Ofcom has responded to this increased competition by allowing Royal Mail a good deal of freedom to raise many of its prices. But Ofcom still limits the extent to which Royal Mail can increase the price of the 2nd class stamp so as “to ensure a basic, affordable, universal postal service is available to all consumers and that users of postal services, especially vulnerable consumers, are protected from ongoing price increases”.
Royal Mail is nevertheless free to raise 1st class stamp prices by as much as it likes, hence the sharp increase in the price of a 1st class stamp shown in the above chart. This may or may not make commercial sense. Most companies that are haemorrhaging customers do not increase their prices. That leads to a death spiral.
But £1.25 is still arguably pretty good value for a 95% reliable overnight service. You won’t find DPD, UPS or anyone else offering to deliver almost all items next day for anything like this sum. (DPD’s equivalent price is £7.67, although they track their deliveries and will aim to deliver nearer 100%.)
Royal Mail argue that it now costs a lot more per item to deliver 40 million items a day than it used to cost to deliver twice as many. I am not so sure. It is still a substantial business.
Royal Mail’s Achilles heel is its service quality. It has signally failed to achieve its published targets for some time now. Ofcom do need to address this.
But … many would like to see stamp prices come down. Can the regulator help the company cut its costs? Cutting out Saturday deliveries might be a fair price to pay for reduced stamp prices, even if there is no prospect whatsoever that such a decision might be made before the General Election - and a Labour Government might not want to antagonise the powerful Communications Workers Union.
Finally, here is an inflation adjusted price chart for those wanting to know what has happened to postal prices since the introduction of the ‘penny black’. (Eagle-eyed readers might notice subtle differences from the first chart, above. This is because this chart uses RPI to measure inflation instead of (the better, but only recently introduced) CPIH used above.)
Some archived, more detailed history is here.
Martin Stanley - Editor - Understanding Regulation