Britons will have to pay 30 percent more for a first-class stamp to help protect the country's universal postal service, in the latest move toward a privatisation of Royal Mail now expected in early 2014.
Royal Mail, which was given new price-setting powers by industry regulator Ofcom on Tuesday, said the price for a first class letter would rise to 60 pence from 46p on April 30, as it seeks to turn around its loss-making letters business.
A second-class stamp for a standard letter will go up to 50p from 36p, below a 55p cap put in place by Ofcom.
We know how hard it is for households and businesses when our economy is as tough as it is now. No-one likes to raise prices in the current economic climate. But, regretfully, we have no option, Royal Mail chief executive Moya Greene said.
The Ofcom approach to regulation is incredibly significant. This gives the company the commercial freedom that we need to have in order to restore the financials and to secure the universal service for the UK, she said.
The Communication Workers Union, which represents non-managerial staff at Royal Mail and the Post Office, said the price hikes were a natural progression towards full competition and privatisation of postal services.
Those people who baulk at the idea of stamp price rises should understand that it comes directly from government decisions to privatise this industry, CWU general secretary Billy Hayes said.
The rise came as a monthly survey from polling company YouGov showed inflation expectations eased to 2.7 percent this month from 2.8 percent in February. Expectations for annual inflation over the next 5-10 years were stable at 3.4 percent.
The news followed a decision by the European Commission last Wednesday to approve government plans to take on Royal Mail's hefty pension fund in a bid to improve its safety for employees, and attract private sector investment.
Greene told Reuters Britain had taken all of the big steps necessary to pave the way for outside capital interest.
I do not think that it is impossible that we could be in a deal mode in 2013. But, personally, I think it is probably more likely to be the first quarter in 2014, she said.
My preference, and I believe the government's preference, is a float. The postal services act contemplates a full sale of the company but we have to keep our options open as we move further down the path in that process.
Royal Mail more than trebled operating profit to 67 million pounds ($107 million) in the six months to September, as its European express parcel service GLS, and its post office branch network offset a loss at its letters and parcels division.
REGULATORY GO AHEAD
Ofcom gave Royal Mail new price-setting powers as part of a seven-year framework designed to protect the universal postal service amid declining volumes and sales.
Royal Mail said the changes were vital to making the service, which costs 6.7 billion pounds per year to run, sustainable.
The service agreement ensures consumers get a universally-priced postal service six days a week. Royal Mail made a 41 million pounds operating loss on letters and parcels in the six months to September 25.
In the last four years it has made a loss on its core mail of almost 1 billion pounds. Volumes have fallen 25 percent in six years and were expected to decline about 5 percent annually for the foreseeable future.
Huge changes are affecting the postal industry ... as consumers and businesses switch to other means of communications such as text, email and online services, Ofcom said, adding it could intervene if the new regime did not work.
Ofcom said Royal Mail must continue to provide competitors access to its delivery network and will be able to set a wholesale price for doing so. This will be subject to rules regarding the margin between its wholesale and retail prices.
Last week, Britain's second largest postal firm TNT Post said it was to trial deliveries in west London in April as it steps up ambitions to rival Royal Mail.
Royal Mail said a large letter stamp up to 100 grams will rise to 90p from 75p for first class and to 69p from 58p for second class.
(Editing by David Holmes and Dan Lalor)