Ofcom will leave current postal rules in place for five years after Royal Mail performance improves

Rebecca Smith
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Ofcom did though, warn Royal Mail faced hefty fines if it continued to miss targets (Source: Getty)

Communications regulator Ofcom has said it will leave current postal rules in place for five years after concluding a review of Royal Mail regulation, saying it had made progress.

The regulator said the service had been under "significant pressure" incurring a loss of more than £100m in 2011 as people continued to send fewer letters, but Royal Mail's performance has improved since Ofcom introduced rules.

However, it noted that some delivery targets are still being missed and if Royal Mail continues in this vein, it could face "significant fines". The regulator also "tightened up" some rules, keeping the safeguard cap on Second Class parcel prices in place.

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Ofcom brought in a new framework for postal regulation in 2012 to secure the universal postal service, including greater commercial freedom for Royal Mail as well as a safeguard cap on Second Class stamp prices to protect vulnerable consumers.

With its review now completed, Ofcom said today it has found these rules and safeguards "are generally working well for people and businesses who use the post" and the framework will remain in place until 2022. It had been due to expire in 2019.

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The regulator said the postal service company had made efficiency improvements, though there was scope for more. Royal Mail's profit margin for 2015/16 was at the lower end of the five to ten per cent range, though within it, which Ofcom feels is likely to be consistent with a sustainable universal service.

Ofcom has also decided not to impose new controls on Royal Mail's wholesale or retail prices, saying the firm already has "strong commercial incentives to improve its efficiency."

Jonathan Oxley, Ofcom competition director, said:

Our review has shown that current rules are generally working well for companies and households. Royal Mail still has room to improve. So we'll keep a very close eye on all aspects of the company's performance, and step in if we need to protect consumers from high prices.

Royal Mail said: "We are reviewing the document and will issue a statement in due course."

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