The affordability of universal postal services

19 March 2013

Summary

1.1 The Postal Services Act 2011 and the EU Postal Services Directive 1997 require universal postal service prices to be affordable.

1.2 In March 2012, we published our decision on the new regulatory framework for the postal sector ('the March 2012 statement'). (-1-) This granted Royal Mail significantly more pricing flexibility to help secure the ongoing provision of the universal postal service, subject to certain key safeguards. These included safeguard caps on Second Class stamp Letters (-2-) and Second Class stamp Large Letters (-3-) and packets up to 2kg to ensure vulnerable consumers could afford a basic universal postal service. (-4-)

1.3 Another safeguard was a commitment to an effective and ongoing monitoring regime to track Royal Mail's performance in respect of progress of efficiency, quality of service and the affordability of universal postal services. As part of that monitoring regime, we also committed to give further consideration to our approach to assessing whether universal postal services are affordable.

1.4 This report explains:

  • our approach to assessing whether universal postal services are affordable;
  • our findings following work to understand better consumers' use of and needs for post; and
  • how we will monitor affordability of universal postal services on an ongoing basis.

1.5 Our analysis has focused on those residential consumers and businesses that we consider are most likely to be at risk of not being able to afford universal postal services. For residential consumers this comprises consumers who have low income, and consumers who may be particularly reliant on postal services including, for example the elderly and disabled, or those who lack internet access. For businesses, this comprises small and medium businesses for which postal services are a critical input.

1.6 We have drawn on a variety of inputs and information sources to inform our assessment of the affordability of universal postal services, including existing and specially commissioned market research, input from consumer and industry stakeholders, and advice from social policy experts.

1.7 In summary, the evidence we have collected indicates that universal postal services are affordable for both residential consumers (including low income and other vulnerable consumers) and businesses (including small and medium businesses) at current prices. We have reviewed the price changes that are due to take effect from 2 April 2013 (as announced by Royal Mail in March 2013), and consider that universal postal services will continue to be affordable following these changes.

Key findings for residential consumers

1.8 Overall, our findings suggest that universal postal services are affordable for almost all residential consumers, including low income and other vulnerable consumers, at current prices and prices to take effect in April 2013. We note that our research findings indicate that there are some very limited circumstances where a consumer could be at risk from not being able to afford universal postal services. These circumstances are where a consumer suffers both significant financial difficulty or very low income, and has a frequent need to send post items they consider to be essential. This reflects very particular circumstances and severe financial hardship. It is likely that consumers in such circumstances would unfortunately have concerns about the prices of universal postal services, even at much lower prices.

Key findings for businesses

1.9 Overall, our findings suggest that universal postal services are affordable for UK businesses, including small and medium businesses, at current prices and prices to take effect in April 2013. Although we found that a very small proportion of businesses might be at risk of being unable to afford universal postal service prices, (-5-) we have not found (nor has it been raised with us) any evidence to show that such businesses are in fact unable to afford universal postal services or that the commercial viability of businesses would be significantly impacted by current prices or prices due to take effect from April 2013.

Next steps

1.10 We will continue to monitor affordability through our general monitoring regime to track Royal Mail's performance. (-6-) In particular, we will continue to carry out our quantitative 'tracker' research for residential consumers and businesses to monitor post use, and to assess the affordability of universal postal services, value for money and satisfaction with post and postal prices. We will also commission further consumer research to explore consumer views and experience concerning affordability if we consider that this is necessary to supplement our ongoing monitoring.

1.11 We continue to welcome engagement on this important topic, in particular if stakeholders have evidence of universal postal services being unaffordable.

The affordability of universal postal services - full report PDF, 1.2 MB PDF, 59.5 KB

Footnotes:

1.- Ofcom statement Securing the Universal Postal Service March 2012 available at: http://stakeholders.ofcom.org.uk/binaries/consultations/review-of-regulatory-conditions/statement/statement.pdf

2.- "Letters" means any item up to length 240mm, width 165mm, thickness 5mm and weighing no more than 100g.

3.- "Large Letters" means any item larger than a Letter and up to length 353mm, width 250mm, thickness 25mm and weighing no more than 750g.

4.- The safeguard cap on Second Class stamp Letters came into effect on 1 April 2012 and can be found at: http://stakeholders.ofcom.org.uk/binaries/consultations/review-of-regulatory-conditions/statement/annex7.pdf. The safeguard cap on Second Class stamp Large Letters and packets up to 2kg came into effect on 20 July 2012 and can be found at:http://stakeholders.ofcom.org.uk/binaries/consultations/postal-service-letters-packets/statement/statement.pdf.

5.- These would be specific types of business which have low turnover, low spend on mail, and where mail is 'core' to their business.

6.- Ofcom Annual monitoring update on postal the market November 2012. Available at: http://stakeholders.ofcom.org.uk/binaries/post/monitoring-update2011-12.pdf