No ‘free pass’ for Royal Mail as Ofcom review gets underway

Communications watchdog Ofcom is considering reforms to the UK’s embattled postal service, with changes to second class letter delivery proposed in order to help turn Royal Mail around.

It follows the launch of a “national debate” earlier this year on how to ensure the postal service remains affordable, efficient and sustainable amid declining letter volumes and big financial losses for Royal Mail. 

Key findings from the review show public support for maintaining affordability and the option of a next-day first class service six days a week, but most acknowledge that many letters are not urgent and changes are needed.

But this won’t be a free pass for Royal Mail – under any scenario, it must invest in its network.

Ofcom said today that Royal Mail could make “substantial” savings and improve reliability if second class letters continued to be delivered within three working days but not on Saturdays.

“If we decide to propose changes to the universal service next year, we want to make sure we achieve the best outcome for consumers,” said Lindsey Fussell, Ofcom’s group director for networks and communications.

“So we’re now looking at whether we can get the universal service back on an even keel in a way that meets people’s needs. But this won’t be a free pass for Royal Mail – under any scenario, it must invest in its network, become more efficient and improve its service levels,” Fussell added.

According to Ofcom, providing the current universal service to the UK costs Royal Mail £325m to £675m every year. The regulator is planning further research and will consult on detailed reform proposals in early 2025, with a decision expected by summer 2025.

Martin Seidenberg, group chief executive of Royal Mail parent company, International Distribution Services (IDS), said: “To save the Universal Service, we have to change the Universal Service.

“Letter volumes have fallen from their peak of 20bn to just 6.7bn a year today meaning the average household now receives just four letters per week. Yet whilst most countries have adapted their Universal Service requirements to reflect the new reality, in the UK the minimum requirements have not changed.

“The Universal Service faces a very real and urgent financial sustainability challenge. Change cannot come soon enough. We look forward to continuing to engage with all our stakeholders to secure a financially sustainable Universal Service for many years to come,” Seidenberg added.

The Universal Service faces a very real and urgent financial sustainability challenge.

Royal Mail laid out its modernisation plan in April, in response to Ofcom’s call for input. It posted losses of £348m in 2024 and £419m in 2023, when Ofcom fined Royal Mail £5.6m for missing its first and second class delivery targets.

The regulator is currently investigating Royal Mail’s failure to meet its delivery targets for 2024.

It comes as the British government is currently reviewing the takeover of IDS by Daniel Křetínský, the billionaire also known as the ‘Czech Sphinx’.

In May, the board of IDS said it was “minded” to accept Křetínský’s £3.6bn offer to buy the firm via his EP Group.