MPs have backed increases in the price of stamps despite expressing concerns about the impact on vulnerable consumers and small firms.

The Business Select Committee said on Friday it is "appropriate" for first class stamps to rise above the current 46p rate, and 36p for second class post.

Key Points

  • MPs back increases in stamp prices
  • But concerns raised about impact on vulnerable consumers
  • Ofcom decision expected in coming weeks

But the MPs raised fears higher prices could lead to less mail posted.

Regulator Ofcom says without an increase, Royal Mail may no longer be able to afford to offer its Universal Service Obligation (USO), which requires it to collect and deliver letters six days a week, to the same standard.

'Some increase necessary'

Adrian Bailey, chairman of the select committee, says: "There is no doubt market uncertainty is placing significant, additional pressures on Royal Mail and some increase in the price of stamps is necessary.

"However, this report highlights the need for Royal Mail to consider robust data on the position of vulnerable consumers and small businesses when determining the future prices of stamps.

"It must also be sensitive to the possible effect on its volume of business and the need for higher prices not to operate as a disincentive against efficiency measures."

Bailey warns some smaller companies might find higher stamp prices a "real problem" in the current economic climate.

The Royal Mail is however planning to hold Christmas stamp prices this year for around five million people on pension credit and employment and support allowances, but the MPs say they have "substantial concerns" about how the scheme will work.

The MPs recommend Ofcom should consider linking any stamp price cap with the Consumer Price Index rate of inflation rather than the usually higher Retail Price Index rate of inflation.

Ofcom proposals

Ofcom proposed in October last year to give Royal Mail freedom to set its own prices for products including:

  • First class deliveries – letters, large letters and parcels.
  • Second class deliveries – for large letters and parcels up to 1kg in weight, but NOT standard second class letters.
  • Standard parcels.

With no cap, the plans could see the price of first class stamps soar.

The price of second class stamps for standard letters could also rise, although Royal Mail would not be able to set this value.

Instead, Ofcom is proposing to set a price cap of between 45p and 55p for second class stamps from 1 April this year, which would be indexed in line with inflation.

The price of first class stamps is expected to be pegged back by market forces. If the price of first class stamps is set too high, consumers could switch to second class deliveries, the cost of which will still be regulated.

What happens next?

Ofcom's consultation closed in January and the regulator says it is now considering responses. A decision on prices is expected to be published in the coming weeks.

A Royal Mail spokesman says: "Royal Mail is awaiting the outcome of Ofcom's consultation on its proposals for future regulation of UK postal services before announcing stamp prices for 2012. No final decisions have been made on stamp prices.

"We will, of course, inform customers of any changes to stamp prices as soon as we are able to."

Additional reporting by the Press Association.