Could Royal Mail sell-off lead to stamp price rises?

Updated: 

Protest art

The Royal Mail sell-off has already led to speculation that it was priced too low, and that the taxpayer has been ripped off in order to let investors make a fast buck. However, it gets worse, because on its first day as a publicly traded company, the Chief Executive seems to have hinted that stamp prices could be set to rise.

But how can that possibly be fair?


Hint

Moya Greene was taking part in an interview for Sky News. When asked about stamp prices she said: "We are very proud of the value that we provide for 60p, but we also know that in that field, where we have structural decline on the letters side, we have to be very careful about pricing."

She also highlighted that for smaller letters, post is cheaper in the UK than the European average. The European comparison has been mentioned many times over the last few weeks, and has been taken by some commentators to indicate an effort to build an argument for price rises.

After the interview, Royal Mail told Yahoo that Greene wasn't implying that prices were going to be increased immediately.

However, they have already been clear that the price of a first class stamp will not remain at 60p for long. In the prospectus for the sell-off, it said that the directors expected price rises to be roughly in line with inflation - which could see them rise 3%.



Is this fair?

It's certainly allowed to increase prices. Ofcom gave Royal Mail the right to increase first class stamp prices wherever they see fit from 2012 until 2019 - although second class stamp prices will remain controlled - so cannot rise more than 5p in that time (to 55p).

They haven't been slow to take advantage of these powers. In April 2012 when some price controls were lifted, the price of a first class stamp went through the roof - from 46p to 60p. That's a rise of 30%. Meanwhile the cost of a second class stamp rose from 36p to 50p - an increase of 36%. It was the biggest percentage hike in stamp prices since 1975.

However, there's a difference between something being technically allowed, and something being fair.

Price rises were something that Consumer Futures - the watchdog for the postal service - warned about just before the floatation. In a presentation to MPs it said that the company shouldn't be allowed to simply hike prices in order to make money: it needs to address inefficiencies in the organisation instead.

The argument in favour of selling off the business was based on the assumption that the taxpayer shouldn't be supporting an inefficient business, and that it should be sold off so that the markets would force it to become efficient.

If the company simply takes advantage of its monopoly in order to bleed its customers dry and make short-term profits for the business, then it doesn't matter how many investors have made a fast buck: the entire enterprise will have failed.