Ofcom extends Royal Mail price cap to protect vulnerable consumers

Ofcom today introduced a cap on the prices that Royal Mail can charge for Second Class stamps for large letters and small parcels.

Ofcom decided in March to extend the safeguard cap for Second Class stamps for letters to large letters* and small parcels up to 2kg. As set out in Ofcom’s March statement on securing the universal postal service, these measures are designed to protect small businesses and vulnerable consumers.

Today’s decision, which follows a period of consultation on the structure and the level of the cap, provides consumers with the same level of protection from price rises on Second Class stamps for large letters and small parcels up to 2kg, as they have on Second Class letters.

This means that, over a seven-year period, average price increases on Royal Mail’s large letters and small parcels products will be capped in line with the percentage price increases allowed under the cap on Second Class letters. The cap itself will be indexed with CPI inflation.

Research shows that the average household last year spent around 50p per week on postal services**. Of this, we have estimated that approximately half was spent on large letter and packet and parcel products.

The safeguard cap is designed to ensure that consumer expenditure on these items remains affordable, while at the same time allowing Royal Mail flexibility in its pricing decisions, consistent with our overall approach of price deregulation.

Stuart McIntosh, Ofcom’s Group Director of Competition, said: “Ofcom’s decision to extend the safeguard cap to large letters and small parcels will further protect small businesses and vulnerable consumers.”

Securing a high quality UK postal service

Today’s announcement follows Ofcom’s March 2012 decision on the new regulatory framework for the postal sector that was designed to secure the financial sustainability of the universal service.

This included granting Royal Mail greater commercial freedom in the way it sets its prices, subject to safeguards to ensure that consumers, small businesses and competition are protected.

Ofcom’s statement on extending the safeguard cap can be found here

Notes

  1. * “Large Letters” means any item larger than a Letter and up to length 353mm, width 250mm, thickness 25mm, and weighing no more than 750g.
  2. Ofcom’s decision allows Royal Mail to increase prices across the ‘basket’ of Second Class stamp Large Letters and packets and parcels up to 2kg by no more than 53% over the seven year period of the control (based on 2011/12 prices). This is consistent with the approach used for setting the level of the safeguard cap for Letters.
  3. Royal Mail increased the weighted average price of these services by 14% in 2012/13. A cap of 53% therefore allows a further 34% flexibility in pricing (in addition to CPI inflation) over the remainder of the seven-year period.
  4. **Based on most recent 2011 Office of National Statistics data. Research undertaken by both Ofcom and Consumer Focus showed that consumers claim to send significantly more Letters than all other formats (i.e. over 80% of the items consumers claimed they sent were Letters). However, Ofcom has estimated that around half of consumer expenditure is on the Large Letter and packet formats.
  5. Ofcom took over regulation of postal services from Postcomm on 1 October 2011.