Taxpayers could be on the hook for a multi-million-pound bill to help Royal Mail deliver post.
The 500-year-old postal service, which this month became a takeover target, has urged the Government to contribute to the cost of distributing letters.
It has long argued for a change to rules saying it must deliver letters UK-wide for the same price six days a week.
Insiders say the Universal Service Obligation (USO), which costs Royal Mail up to £675 million a year, has made its parent company International Distributions Services vulnerable to a takeover, with the board ten days ago rejecting a bid £3.2 billion bid from Daniel Kretinsky.
Last week IDS urged regulator Ofcom to move faster on reform amid reports the Czech billionaire – who co-owns West Ham Utd and has a stake in Sainsbury’s – was working on a fresh offer.
Struggle: Insiders say the Universal Service Obligation has made its parent company International Distributions Services vulnerable to a takeover
Royal Mail argues the system is outdated as letter volumes have fallen from 20 billion two decades ago to 7 billion. They are likely to fall to 4 billion in five years.
Royal Mail, which was privatised in 2013, is hoping to cut second class deliveries to reduce costs. In the meantime, it has asked Ministers to contribute financially until the rules are reformed, though it would not reveal how much taxpayer funding it was seeking.
Ofcom puts the cost of the obligation at £325 million to £675 million a year. Royal Mail reported a loss of £319 million in the first half of its financial year, following losses of £419 million in 2022/23.
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Ministers left Royal Mail vulnerable to a takeover after... ‘We call for Government to consider a temporary contribution,’ Royal Mail said. ‘The case is even more imperative if Ofcom delay urgently needed regulatory reform until after a General Election, which as Ofcom acknowledges, could lead to “consumers paying higher prices than necessary”.’
Even then, it warned the USO may become unsustainable again as letter numbers continue to decline. At that point the Government may need to pay subsidies on a permanent basis, it said.
Royal Mail also wants Ofcom to assess the costs of the USO every two years ‘allowing for a fair debate about how these costs are rightly met’. That could make it easier for Royal Mail to cut back services. In plans submitted to Ofcom this month, Royal Mail proposed delivering second class letters every other working day.
First class post would still be delivered Monday to Saturday but would cost more, with parcels still dropped off seven days a week.
Royal Mail would also slow delivery of standard bulk business mail, such as bills and statements, to arrive in three weekdays instead of two, saving up to £300 million but costing up to 1,000 jobs.
The postal service said changes must be approved by April next year lest customers face ‘further and significant price increases’.
The Department for Business said: ‘We have no plan to change the USO and any change to Royal Mail’s operation must take into account the impact on businesses and vulnerable consumers.’
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