Ofcom to extend Royal Mail safeguard cap to protect vulnerable consumers

27 April 2012

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

As part of last month's statement on securing the universal postal service, Ofcom decided that the safeguard cap on Second Class letters should be extended to large letters and small parcels up to 2kg to further protect vulnerable consumers and small businesses.

Under today's proposals, customers will have the same level of protection from price rises on Second Class small parcels and large letters 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 would be capped in line with the percentage price increases allowed under the cap on Second Class letters. The cap would be indexed with CPI inflation and based on 2011/12 prices.

Research shows that the average household spends around 50p per week on postal services*. Of this, approximately half - 25p per week - is on large letters and small parcels.

The safeguard cap is designed to ensure that consumer expenditure on these items remains affordable.

Stuart McIntosh, Ofcom's Group Director of Competition, said: "Ofcom's decision to extend the safeguard cap will further protect vulnerable consumers and businesses.

"Our proposals ensure that prices of large letters and small parcels up to 2Kg will remain affordable."

Securing a high quality UK postal service

Today's proposal follows last month's decision to give Royal Mail greater freedom in the way it sets its prices, subject to safeguards to ensure that consumers and competition are protected.

Ofcom's new regulatory framework for post is designed to secure the continued sustainability of the universal postal service.

Ofcom's consultation can be accessed here.

ENDS.

NOTES FOR EDITORS

1. Our proposal is to allow Royal Mail to increase prices across the ‘basket' of Second Class small parcels and large letters up to 2kg by no more than the same proportion allowed for the letters format. We allowed Royal Mail to increase its letter prices by no more than 53% over the period of the control based on 2011/12 prices. This option would allow Royal Mail to increase the average price of the basket by no more than 53% compared to 2011/12 prices over the seven-year period of the control.
2. Royal Mail increased the weighted average price of these services by 14% in 2012/13. A cap of 53% would therefore allow a further 34% flexibility in pricing (in addition to CPI inflation) over the remainder of the seven-year period.
3. *Based on most recent 2011 Office of National Statistics data. Consumer Focus research showed that while consumers and vulnerable consumers claim to send significantly more letters than all other formats (both groups claimed that over 80% of the items they sent were letters), around 50% of the total expenditure on post was standard letters.
4. Ofcom took over regulation of postal services from Postcomm on 1 October 2011.
5. Ofcom is the independent regulator and competition authority for the UK communications industries, with responsibilities across television, radio, telecommunications, wireless communications and postal services.
6. For further information about Ofcom please visit: www.ofcom.org.uk. Ofcom's news releases can be found at: http://media.ofcom.org.uk/