News

June 28, 2011

Postal service reforms may push up mailing costs

Businesses may face increased mailing costs following the approval of plans to privatise Royal Mail, the Direct Marketing Association (DMA) has warned.

The DMA said that while the Postal Services Bill, which was passed earlier this month, will make Royal Mail a “more attractive proposition for investors”, it was likely that competition would suffer.

“Without any incentive for Royal Mail to improve efficiencies or cut costs, prices are likely to increase,” said DMA spokesman Alex Walsh. “This year alone we’ve seen a 15 per cent hike in mailing costs.

“Increasing prices further will undoubtedly lead to many firms shying away from using mail to communicate with consumers,” he added.

Under the Postal Services Act (2011), up to 90 per cent of Royal Mail will be transferred to the private sector, with the remainder owned by employees. The Act also shifts regulatory responsibility from Postcomm to Ofcom.

Edward Davey, minister for postal affairs, said: “Royal Mail is facing some huge challenges – falling mail volumes, a vast pension deficit, less efficiency than its competitors and an urgent need for more capital. The number one reason we are taking action is to ensure that the universal postal service is protected in the face of these challenges.”

Forum of Private Business senior policy adviser Phil McCabe said it was essential for small firms that “a cost-effective postal service was maintained”, as 50 per cent of UK firms still sent the majority of their bills and invoices by post.

“Our members have struggled over the past few years with costly developments, so while many of the measures outlined in the Postal Services Bill are necessary it’s crucial we get any changes right to minimise further disruption,” he said.

McCabe added that an over-reliance on competition to maintain standards would not be beneficial for businesses.