Forum of Private Business warns over Royal Mail postage hike

Massive increases to the price of posting mail in the UK will harm small business and hasten the demise of the Royal Mail, the Forum of Private Business has warned.

In a letter to Ofcom, the not-for-profit group urged the industry regulator not to allow Royal Mail bosses to go ahead with radical reforms which could drive the price of a second class stamp by as much as 50 per cent.

Ofcom is currently consulting on the proposals which are part of a huge shakeup planned by Royal Mail executives who say the changes will allow it to become profitable again, but could see second class stamp prices rocket from 36p to 55p.

Other proposals being considered are no-limit increases for the price of a first class stamp until 2018 which would not require Ofcom approval as per current rules.

Royal Mail, whose letter business lost £120m in 2011, have submitted the proposals to Ofcom who have to agree to any price revisions before they can be implemented. But the Forum has warned the industry watchdog that agreeing to them would simply create another cost barrier to trading for small firms reliant on postal services who can ill afford further price hikes.

"We understand that Royal Mail is currently a loss-making organisation and action needs to be taken to address this, but we believe constant price rises are not the way to tackle the issue," said the Forum’s head of campaigns Jane Bennett.

"Small businesses are regular users of the service and would be the hardest hit by any increases, and it’s these businesses which are already experiencing high business costs.

"Constantly increasing stamp prices is no way to reform a service, and could actually reduce the number of customers using the postal service. Royal Mail needs to improve its efficiency, but not by crude price hikes," she said.

The results of the Forum’s latest quarterly Referendum survey revealed that 97 per cent of the small businesses surveyed have seen the cost of doing business rise over the past year. Rises in postage costs, says the Forum, would stretch budgets still further.

In order to reduce costs, businesses would be forced to look to alternative providers, or reduce the amount of mail they send, which in turn would result in even less business for Royal Mail and a self-defeating spiral of decline.

The latest price increases being proposed by Royal Mail come on the back of a 12 per cent rise in 2011, and is seen by the Forum as attempts to make small business bear the cost of Royal Mail reform.

Bennett added: "These rises are already hurting businesses which are struggling due to the tough economic climate. The loss of controls would lead to steeper price increases, and even with a second class stamp price safeguard, the price of one could still rise by over 50 per cent.

"Is there sufficient evidence to suggest further price rises will help the organisation in the long term? Considering the price rises of the past few years which have not alleviated  Royal Mail’s existing problems, the answer is no.

"One alternative would be to diversify the services on offer by making available more high-end services, thus enabling the price of the standard service to remain affordable."

She said: "During the difficult economic climate we believe it is unjustifiable for Royal Mail to increase its prices by large amounts without check. These rises will hit small businesses, who tend to be regular uses of the service, hard, at a time of economic difficulty and already high business costs."

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