Royal Mail Proposes Reduction in Parcel Delivery Prices

The cost of tracked parcel deliveries could drop by up to 20% under a reform of services being considered by the postal regulator.

Royal Mail aims to incorporate tracked and end-of-day special delivery services into its regulated operations. This change would exempt these services from the 20% VAT, potentially making deliveries more secure for households as parcel theft increases.

This initiative is part of a proposal to Ofcom, the industry regulator, which is holding a consultation on the delivery processes for letters and parcels.

Next month, Ofcom will present recommendations to amend the universal service obligation (USO) — the stringent rules Royal Mail must follow to avoid hefty fines. Historically, these regulations have ensured VAT-free delivery of first and second-class letters to every household six days a week.

Amid a potential £3.6 billion takeover by Czech investor Daniel Kretinsky, Royal Mail suggests Ofcom relax these letter service requirements and reduce second-class mail delivery to three days weekly.

Royal Mail is also keen on expanding regulation for tracked parcels, viewing this as vital for business growth due to declining letter volumes. Delivering to every household already positions Royal Mail to add more parcels at a lower incremental cost, enhancing profitability.

“Parcel tracking is a basic service customers increasingly expect, which competitors already offer,” Royal Mail stated in its submission to Ofcom.

Rival services, which aren’t bound by the universal service obligation, often charge additional fees for deliveries to remote areas. “Surcharging by other parcel operators creates an unfair market that disadvantages customers in rural and remote areas of the UK,” Royal Mail added.

Royal Mail emphasized the importance of providing all consumers and SMEs with an affordable and fully tracked parcel service that applies to any location at the same price.

While regulating tracked and end-of-day special delivery services would benefit Royal Mail competitively due to VAT exemptions, the company argues it wouldn’t harm market competition. “There is no evidence that this would significantly undermine competition,” Royal Mail asserted.

Dame Melanie Dawes, Ofcom’s chief executive, noted during January’s consultation announcement that the universal service is outdated and unsustainable. “We’re sending half as many letters as in 2011 while receiving many more parcels,” she stated.

Having recently experienced significant industrial action, Royal Mail has not met USO delivery targets. Ofcom reported that only 79.1% of first-class mail was delivered on time, beneath the 93% target. However, second-class mail standards were upheld.