‘Regressive’ post plan will hit small businesses in rural Scotland

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By a Newsnet reporter

SNP Business and Enterprise spokesperson Mike Weir has warned that small businesses could be hard hit by proposed post pricing changes after Ofcom, the regulator, confirmed in a letter to the MP that its proposals could mean that the universal service obligation will be limited to second class services only.  The changes could prove expensive for companies who rely upon the Royal Mail to send products to customers.  

With the recent boom in online shopping, many small businesses are now operating in rural areas and outside the major centres of population, and use the Royal Mail to deliver their orders to customers.  A price hike could risk putting some of these small businesses out of operation, creating fewer employment opportunities in rural areas.  Businesses operating in the Scottish islands could be amongst those hardest hit.  Many commercial delivery companies already impose extra charges for island residents, or refuse to deliver outside the British mainland.

Currently the Royal Mail is legally obliged to provide the same service for the same price to customers in all parts of the UK, and to provide the service 6 days a week.  However as part of a consultation on the future of the universal service obligation Ofcom are proposing to give Royal Mail full commercial freedom to determine contracts with large companies and other postal providers as to what they will charge for the final delivery of items.  Ofcom’s consultation on ‘Securing the Universal Service Obligation’ closed on 5 January.

Ofcom suggest there should be no cap on prices for the vast majority of Royal Mail’s services, including business post, bulk mail, and large letters and parcels sent second class.  At a meeting with Ofcom, Mr Weir expressed concern that this could lead to higher prices in rural and remote areas.

In a letter to Mr Weir from Ed Richards, chief executive of Ofcom, the postal regulatory body noted that since the Postal Services Act was passed into law by the Coalition government, Ofcom no longer has the power to restrict the ability of the Royal Mail to introduce price variation based upon a customer’s location.  The Royal Mail has already introduced price surchages for very large packet contracts for collection from some rural areas, although at present these apply only to a small number of larger businesses.

In his letter to Mr Weir, Mr Richards said that should the Royal Mail introduce such surcharges for smaller businesses too, customers would have the opportunity to switch to the second class service, leading to delays in the completion and delivery of orders.

Mr Weir said:

“These are regressive proposals which will hit small businesses and rural areas hardest and undermine the same cost everywhere system that has been the bedrock of the Royal Mail service since the introduction of the penny post in 1840.

“Under their current proposals Ofcom are to define the universal service as the current second class service, and even there the price is to rise substantially.

“They confirm that they ‘will be consulting on which services are included within the universal postal service, but it will include a service for packets and parcels which will be available to small businesses’.  It is clear, however, that small businesses will no longer be certain to have access to a first class service which is essential, especially for those in rural areas.

“Worse still it is clear that Royal Mail will be able to charge what it likes for the first class service, which could make it completely uneconomic for small businesses, especially since Royal Mail will be under no obligation to charge the same first class price throughout the country leaving it open for them to charge higher prices to deliver to more rural or remote locations.

“Such a situation will also make it much more difficult for small businesses to set up and operate in more rural location setting back attempts to grow such businesses to get us out of the current economic mess.”