Royal Mail subsidy will mean price hike for direct mail

The Postal Services Bill passed by Parliament this week will lead to price increases for commercial mailers, says the Direct Marketing Association (DMA).

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The Bill lays the groundwork for a restructuring of the Royal Mail in order to make it attractive for sale and was passed yesterday (9 June). Regulatory and financial issues are dealt with in the Bill.

The Government intends to take on Royal Mail’s historic pension deficit with effect from March 2012 as part of the preparations for a sale. It also intends to restructure the company’s balance sheet so that the Royal Mail’s level of debt will be reduced substantially. This level of financial support needs and informal discussions have now begun with the Commission.

Work to establish a new regulatory framework for postal services is already underway with a transfer of regulatory responsibility from Postcomm to Ofcom alongside an overhaul to ensure restrictions are proportionate to the needs of the market. Ofcom will launch a consultation in the autumn with a view to establishing the new regulatory framework in spring 2012.

Alex Walsh, head of postal affairs for the DMA, says: “While the new legislation will render Royal Mail a more attractive proposition for interested investors, we’re concerned that competition will suffer. There’s also no incentive for Royal Mail to improve efficiencies or cut costs. So, it’s highly likely that commercial mailers will be saddled with price increases along the line.

“This year alone we’ve seen a 15 per cent hike in mailing costs. Increasing prices further will undoubtedly lead to many companies shying away from using mail to communicate with consumers and withdrawing business from Royal Mail, which it can ill afford to lose.”

The ultimate intention for Royal Mail is to sell up to 90% of the postal operator to a private company with the rest handed to Royal Mail employees.

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