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GCA sends Ofcom review response

Submission made on Royal Mail’s USO demands as stamp price rise promises £100m extra income

 

As stamp prices rise yet again today, 2 April – with an estimated £100million increase in income for Royal Mail – the GCA has submitted a greeting card industry response to Ofcom’s proposals to water down the postal delivery giant’s universal service obligations.

Following the industry regulator’s release of its The Future Of The Postal Service review which moots trimming the USO letter delivery mandate to five or even down to just three days a week, the consultation period ends tomorrow.

Above: The GCA submission includes relevant pictograms illustrating various points
Above: The GCA submission includes relevant pictograms illustrating various points

And the more input Ofcom receives from the greetings sector, the better – there is still time to have your say and join others, like Earlybird Designs, Hallmark and Thortful, in submitting your own views by 5pm tomorrow, 3 April, by clicking here to download the response form.

GCA ceo Amanda Fergusson and the association council – notably David Falkner of Cardology and David Byk of Ling and GBCC – have poured much time and resources into compiling a detailed 25-page analysis of Ofcom’s reaction to Royal Mail’s claim the legally-binding USO, where it must deliver letters across the UK six days a week for the same price, is too onerous a financial burden to continue.

Expressing the view that the case that the USO is a burden remains unproven, the submission states: “We believe the proposal of simultaneous significant price rises and service reductions will just unnecessarily accelerate British postal decline, trapping the country in a doom-spiral of increasingly-frequent requests for further bailouts or reviews.”

The trade association’s submission has been made on the same day the latest price increase kicked in for first and second-class stamps, both up by 10p to £1.35 and 85p respectively, which the GCA estimates will give Royal Mail £100m in extra income providing there is no loss in the current 7billion letter volume – using Ofcom’s figures from the review, 17% of that volume is within the USO.

Having also today received a reply from postal minister Kevin Hollinrake in response to the GCA’s letter about Ofcom’s call for input on its review, Amanda told PG Buzz: “This is an important time for our industry’s voice to be heard – with 50% of cards posted, and 42% of consumers saying they only use Royal Mail to send cards, we need to ensure the interests of our industry and the small businesses, High Streets and consumers that our industry serves is heard.

Above: Kevin Hollinrake’s response to the GCA’s letter about the review input call
Above: Kevin Hollinrake’s response to the GCA’s letter about the review input call

“The GCA has worked closely with members to understand the impact of these proposals, and also to review analysis available both in the UK and other parts of the world on letters postal usage. Along with other stakeholders, we are concerned the regulator’s proposals are not taking into consideration the impact of these changes on UK consumers and small businesses.

“We understand Royal Mail is a business and needs to make a profit. However, in our response to Ofcom, we ask for broader consultation and analysis of consumers and small businesses’ needs, along with more transparency around the cost of providing the Letters delivery service before any decisions are made.

“We are pleased to hear from the postal minister that the government also recognises postal services ‘remain a vital part of the UK’s communications fabric for consumers, and businesses’ and also that the government understand the importance of Saturday deliveries.

“We are keen to continue to work closely with Royal Mail to look at ways the postal service can innovate to ensure that consumers and small businesses needs are represented as the future of our postal service is reviewed.”

Above & top: The GCA says cards help the High Street
Above & top: The GCA says cards help the High Street

The GCA’s submission, which can be read in full here, starts under an executive summary heading of “Couldn’t this all be so much simpler?” and raises fundamental questions about Ofcom’s analysis, pointing out: “This matters to us because we’ve got significant skin in the game – the proposed

changes could wipe hundreds of millions of pounds worth of value from our otherwise stable industry and small businesses on High Streets and in back bedrooms up and down the country – but also because it’s not fair to ask the British public to accept weaker service or the cost of subsidies, when far simpler solutions would fix things faster.”

Within hours of Royal Mail’s 1 March announcement of today’s price rises, hundreds of public comments expressing concern flooded news media, and the GCA fears more price rises and service reductions will accelerate a decline in the British postal service, leading to increasingly frequent requests from RM for bailouts.

It states there remains no underpinned service recovery plans or evidence of meaningful progress to restore the Royal Mail service to legally-required levels, and points out there is no historical precedence of a declining industry recovering by radically increasing prices while concurrently dramatically reducing service, which leads to the fear that Ofcom’s current proposals will only accelerate existing postal decline.

The association concludes that immediate service stabilisation and restoration of public confidence in postal service levels is the pressing priority. Discussion of a hypothetical future market is useful, but that market may not exist if current trends are allowed to continue.

It adds any future stamp price rises should be conditional on Royal Mail delivering its required USO service levels and the postal service should not be given the freedom to set pricing for monopoly products without transparent econometric or price elasticity modelling and meaningful consultation with consumer advocates and trade associations ahead of future pricing changes.

Above: The public response was a thumbs down to the latest stamp price rises
Above: The public response was a thumbs down to the latest stamp price rises

Pointing out the GCA and its 500-plus SME members represent a thriving vibrant creative industry, contributing £1.5bn annually to the UK economy, the association adds that Ofcom’s data indicates the category is critical in how Royal Mail is perceived by end consumers.

The data shows greeting cards are the most frequent items UK consumers post, and 42% of customers now say sending cards is the only time they use Royal Mail – 94% of Brits continue to exchange cards, and 49% of the population have sent at least one in the past month with GCA analysis indicating on average 50% of purchased cards are posted, equating to around 415m letters per year.

Saturday postal delivery is crucial as weekly demand profile data indicates customers regularly order cards in anticipation of seeing a loved one over the weekend, and Saturday provides a critical backstop given current quality of service performance, and is even more critical in the run up to big seasonal events such as Mother’s Day, Father’s Day and Easter which all fall on a Sunday.

The GCA submission mentions that Royal Mail’s current peak surcharge applied to business letters during each festive period is a pricing strategy that’s entirely inconsistent with its wider claim that falling letter volumes cause network under-utilisation which is the reason letter prices must rise.

And it adds that Royal Mail could take far more initiatives to stem its volume decline and even return sectors of its letters business to growth.

Above: Many people now only use Royal Mail to send cards
Above: Many people now only use Royal Mail to send cards

One example was last summer when the GCA looked at the idea of Christmas stamp at a lower price point to grow November and December letter volumes and total revenues. Although Ofcom said this was an “interesting commercial decision, solely for Royal Mail”, RM claimed “the regulator won’t let us do this because we’d be pricing below costs”.

The GCA stressed that no changes to the USO should be made without a full statutory cost assessment, including a downstream industry assessment to ensure the true costs to the British economy are understood before any decisions are taken about how any proposed changes should be funded.

And it concluded: “There needs to be greater transparency from Royal Mail. In a market that Ofcom advises is highly unlikely to attract new entrants, there are extremely limited reasons why data can be justified as commercially confidential, especially in circumstances where Royal Mail are claiming they require further regulatory relief, bailouts and/or state support to continue.”

If anyone still wants to respond to Ofcom’s review, the official consultation form can be downloaded here and must be completed and returned to the email address supplied by 5pm tomorrow, 3 April, 2024.

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