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When it comes to postage stamps, you’re always dealing with a monopoly

26 October 2013

Well, the whole Royal Mail privatisation is going terrifically well, isn’t it? I’m not talking about the pricing of the issue which has obsessed most of the pundits. I’m talking about users. The latest exciting new development from this privatised company with the Queen’s head on the product is that it is to use new technology to let companies know that their promotional material – junk mail as it’s affectionately known to its recipients – has been safely put through the door, so they are now free to cold call households to follow up the delivery. Nice!

But it’s the impact on the price of stamps that really gets me going. I may be the last person on this site to use real stamps for actual cards and letters, though they’re now a supplement to email. And for those who have not passed the door of a post office for a year or two, let me pass on word from the queue: it’s really, really expensive. A card I sent to Ireland yesterday cost £1.28, more than the actual card. And, let us never forget the rise in ordinary stamp prices in preparation for privatisation. Last year, the price of a first class stamp rose from 46p to 60p. Second class stamp prices rose from 36p to 50p: or ten shillings, as many pensioners will think about it.

The rise followed a decision by Ofcom to lift the price cap on first class stamps. I honestly can’t think of any industry, particularly a monopoly industry, that could get away with a price increase on that scale, of more than a third, with barely a peep from anyone in government. It also followed the government separation of Royal Mail from the Post Office, a decision about as rational as separating the management of rail track from train operations.


Last week, the Spectator’s piece on the dodgy personages who feature on the Renaissance Nativity scenes on classy Christmas cards made amusing reading (though I’d feel better about our oligarchs if they did have a redemptive devotional side). Well the real question is whether ordinary people on ordinary salaries will have to forego sending Christmas cards at all because they can’t afford the postage. It’ll be then that the sheer scale of the hike hits you. Even before the increases, personal mail accounted for only about a tenth of Royal Mail business but from the punters’ end of things, this aspect of Royal Mail is a genuine public service; a necessary bit of social infrastructure, one that older people, particularly, feel wedded to.

The reassuring news in the wake of privatisation is that Moya Green, the much-admired (in the business community) boss of Royal Mail says that she doesn’t envisage increasing the price of a first class stamp to £1, not just yet (‘circumstances change’), though she justifies price increases on the basis that the average spend by British households on postage is 50p a week. ‘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 later told Sky News in an interview to mark the first day of unconditional trading in Royal Mail shares.

Let me, in the mildest fashion I can manage, suggest another possibility to Ms Green, viz, that one reason why there is structural decline in letter-sending is that it’s prohibitively expensive. In other words, the decline in letter-writing that email brought about has been hugely aggravated by the cost of sending the letters once written. What she sees, in short, as a symptom of the problem is a contributory cause.

In the prospectus for the sale of shares published last month, the Government acknowledged that price rises were possible but said:

‘Despite the significant increases in prices that were implemented in April 2012, the UK letter market remains competitively priced when compared with European countries. Following such significant increases (including above RPI [retail price inflation] price increases in [the full year ending 2012], the directors expect any price increases to be broadly in line with the RPI over the three financial years ending in FYE 2016.’

Can anyone work that out? My own reading of it is that after 2016 the new owners of Royal Mail will be able to charge what they like. In other words, the price of an important service – an important public service – is going to be at the mercy of the major shareholders of Royal Mail. Of course, businesses like Amazon are going to be able to make use of a competitive parcel delivery market to get the best possible postage rates; the rest of us won’t. We’ll have to lump the rise in stamp prices, sending ever fewer cards and letters, with the decline in letter-sending then used by Ms Green as a justification for still further price rises. We’ll be left with a de facto monopoly supplier which behaves like a private business. Actually, when it comes to stamps, I like state run monopolies. At least ones that don’t rob you blind.

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  • anneallan

    Each year I design my own Christmas card. Some I print, otherwise I use the picture as an attachment to a chatty email.
    I make sure the cards are printed and addressed by the end of November in the knowledge that in the following three weeks I will, while shopping, visiting friends and so, have covered all the local destinations for my cards without wasting time and petrol. This leaves a dozen or so cards to be posted. The days of just casually bunging the lot in the nearest letter box are well and truly over.

  • Mynydd

    The Royal Mail is there to provide dividends to its shareholders, nothing more.

    • Nicholas chuzzlewit

      Well as a lot of those shareholders are now members of staff who will quickly realise on what side their bread is buttered and should thus focus on providing the rest of us with a decent service. When they could just sit there and be paid regardless there was no incentive to do a decent job beyond personal pride and thus the service quality, like everything else in the public sector, was appalling. Competition with other providers might just improve the performance and culture of the organisation in a positive way and who knows, the staff and customers might benefit.

  • Q46

    The four phases of the product cycle.

    Wildcard; Rising star; Cash cow; Dying dog.

    Postal services are in the final Dying dog stage for the same reasons we don’t use quill pens and ledgers or typewriters.

    In this stage the normal practice for companies is to increase prices to maintain profitability in the face of diminishing sales whilst trying to find a buyer who will operate in a niche market, or if they cannot find a buyer, shoot it.

    The Government founda buyer. It will continue to lose out to new technology and will find its niche with a high price product to reflect low volume sales.

    Important public service: taxis are, airlines are, sport and leisure are but they are not State owned and ‘mercy of shareholders’ is tempered by these services operating in a free competitive market.

    Creating monopolies or distorting markets is contrary to one of the important functions of Government, yet they have done so in health, education, railways, roads, energy and now it seems postal services.

    Time to privatise Government perhaps.

  • Harold Angryperson

    ” Last year, the price of a first class stamp rose from 46p to 60p. Second class stamp prices rose from 36p to 50p: or ten shillings, as many pensioners will think about it.”

    But not very many – a 65 year old today would have been only 23 when we went decimal…

  • Colonel Mustard

    How lucky we are. It was so much more primitive in 1844. I mean who needs 7 postal deliveries a day?

    And to think that they achieved all that without automation, computers, PR gurus, whiteboards, hollow slogans about how good they were, management jargon and CEO’s on huge salaries . . .

    The problem is that as with most of Corporate UK plc (including the variously grouped idiots in parliament and Whitehall) they have forgotten that the basic product to be delivered is service to the customer. And the government seem to believe that they are there to tell us how to behave rather than provide an infrastructure from our taxes that best serves our needs then get out of the way.

  • HookesLaw

    This is one of the biggest loads of rubbish spouted from the Speccy in ages and thats saying something.

  • AndyB

    I appreciate the sentiment, but I’m afraid sending bits of paper and cardboard around the country are a luxury now – not a necessity.

    • salieri

      Undeniably true, Andy – as long as the notion of ‘necessity’ excludes a whole generation (or two) to whom online stuff as a whole remains a mystery, a nuisance or a discourtesy. As for ‘luxury’, doesn’t that rather beg the question? The conflation of cause and effect was part of MM’s argument.

      • Alexsandr

        we cant uninvent the internet. It will challenge most of life as it becomes more accepted.

  • salieri

    The measure of a once great postal service is that when its workers go on strike, nobody notices. And for this they charge a minimum ten bob…

  • In2minds

    Dealing with a monopoly? Actually dealing with the EU. So when talking of the
    problems with the Royal Mail, we have to admit that just possibly the
    three EU Postal Services Directives have something to do with this?

    So we now understand why the government separated
    Royal Mail from the Post Office, a decision about as rational as
    separating the management of rail track from train operations.

    Perhaps it is worth mentioning that the EU rail directive makes separation of
    accounts” between train and track compulsory,

    Finally, the EU generally prohibits State aid unless it is justified by reasons of
    general economic development.

    However, look on the bright side of all this, our PM is a eurosceptic!

    • telemachus

      How on earth can you turn a diatribe on Royal mail to an anti-EU post
      There are some folk hereabouts that are obsessed
      Beats me how a National Service (Post) for that is what it is can survive if left to predatory hedge funds
      Millions of lonely old folk rely on the friendly letter

      • Harold Angryperson

        A patronising and hopelessly out of date view.

        These days the elderly are more likely to get junk mail or bills through the post than a “Friendly letter”.

        Just as these days any calls to your landline are bound to be the usual tele sales pests.

        • Alexsandr

          maybe now the RM is private they should be liable for scam junk mail – the type where you have to ring an expensive phone number to claim a prize. How anyone justifies the RM delivering this stuff is beyond me.

      • neotelemachus

        Are these the millions of lonely old folk who were given 75 pence a week as a pensions rise by the idiot Gormless Brown and his puppet master the fat stammering idiot Balls? Both of whom sold this country out on the referendum promise on the EU treaty change? Idiot.

      • Nicholas chuzzlewit

        Perhaps in the same way that you introduce Stalin into unrelated topics and then paint that wicked mass murderer as a rival to Mother Theresa.

  • Alexsandr

    I give the letter post 5 years before they dump it. Most stuff is online (bank statements, utility bills etc) Hard on those not online but real mail now has a derisory volume (except for the junk)
    Parcels, well there is plenty of competition.

  • Denis_Cooper

    Unfortunately it’s delivering the junk mail that keeps down the price of stamps; I’m not sure whether it’s still true that every stamped letter is delivered at a loss, now that the price of stamps has gone up, but it was certainly true some years ago.

  • dalai guevara

    The post office is no longer required to deliver basic and essential public services such as the postage to a defined network of recipients or the payment of benefits.
    There is a largely well-organised market in which genuine competition can be expected. Time for the market to demonstrate how expensive its offerings really are.

    • neotelemachus

      Where do you get this tosh from craphat? The market drives competition and improved services. The Royal Mail was monopolistic and drove up prices (through subsidies/pension costs) and drove down service through unionised strikes and over-manning. Back to the Beano for you.

      • dalai guevara

        RM stamps used to be the cheapest on the planet!
        Energy, in private hands here, not in the EU, is one of the most expensive here *before tax*. The private model works?
        Rail, in private hands here, not there, is most expnesive here per mile travelled. The private model works?
        Healthcare, private in the US, not private here, is most expensive there.

        Come on, try again two pips, sir. Try harder next time. Give it your best shot.

        • neotelemachus

          Can’t be bothered craphat. I learnt a long time ago you can’t teach someone with a closed mind. All you can do is beat them occasionally and keep them out of your club.

          • dalai guevara

            Yup, you do that. Guess what, the Masons have never appealed to me, not then, not now.

  • Barakzai

    ”At least ones that don’t rob you blind.” Here in the South West consumers are expected to pretend that South West Water isn’t a monopoly and doesn’t charge exorbitantly. And no other state monopoly successor company would dream of charging excessively, of course . . .

    • The Red Bladder

      Banditry is now licensed.

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