Royal Mail given permission to raise stamps by up to 5p

Royal Mail said it needed to make more money to fund its £2bn modernisation programme

Royal Mail has been given the green light to raise the cost of a first-class stamp by 5p to 46p next April.

This would be the largest increase since first-class postage began in 1968.

A second class stamp could rise by 4p, taking it to 36p, under final proposals from regulator Postcomm.

Royal Mail will decide next month whether to implement a rise of that magnitude. It currently loses 6.4p for each stamped letter it delivers.

There have been larger percentage increases, notably in the high inflation 1970s, but a 5p rise on a standard first-class stamp would be unprecedented in cash terms.

Higher charges

The changes are part of series of proposals outlined by Postcomm.

If Royal Mail chooses to increase all the charges up to the maximum allowed, it could mean an additional £380m a year to the operator, which is facing falling profits.

Other proposals allow Royal Mail to increase the price it charges big business customers such as banks and big energy companies for delivering letters.

The mail operator could also be able to charge competitors up to 15% more.

Rivals such as UK Mail collect and sort letters themselves, but have to pay Royal Mail to deliver over what is known as "the final mile" - up to people's letterboxes.

Royal Mail says current rules have meant it loses 2.5p on each item delivered in this way.

The chief executive of UK Mail, Guy Buswell, said all customers of Royal Mail - business and consumer - were effectively "bailing them out".

Speaking to BBC News, he warned that any increases in charges to business users would inevitably be passed onto consumers through higher prices.

New rules

The plans also include the relaxation of some regulations to help Royal Mail compete more effectively with its private sector rivals.

Postcomm said the changes would help Royal Mail fund its modernisation programme and help safeguard the one-price-goes-anywhere universal service in the UK.

Royal Mail welcomed the announcement.

"With mail volumes falling rapidly... it's essential the current regulatory constraints on Royal Mail are eased to allow it to compete fairly in the bulk business mail, and packet and parcel markets, where competition is extremely robust and growing," said chief executive Moya Greene.

Earlier this month, Royal Mail said its half-year profits had fallen by more than two-thirds and its core letters delivery business had returned to making a loss.

The mail operator, which is set to be sold off by the government, has long argued for lighter regulation as competitors have won more of the profitable bulk mail market.

But industry insiders believe its problems have more to do with a failure to modernise quickly enough.

And UK Mail's Guy Buswell said the regulator should have tried to compel Royal Mail to become more efficient, describing the proposals as "short-sighted".

In a statement, Postcomm chair Nigel Stapleton said he welcomed the Royal Mail's pledge to improve as quickly as possible.

But he said he "regrets that the company is unable to do so without making further demands on its customers".