Ofcom call for input on review of postal pricing and affordability

Question 2.1: Do you agree with our proposed objectives for this review?

Consumer Scotland agrees with two of the proposed objectives for review:

• Ensure universal services are affordable, particularly for vulnerable customers;
• Provide protection to postal users where such protection is unlikely to be provided by the need to consider cost recovery and to ensure financial sustainability are statutory requirements for Ofcom, alongside the requirement on affordability competitive markets

However, we would highlight that the two other objectives may be in tension with the first two and Ofcom also recognises this challenge in the Call for Input document. These objectives, as set out in the Call for Input are:

• Ensure any safeguard cap or other interventions take into account cost recovery associated with the intervention;
• Minimise the impact of any safeguard cap or other intervention on the financial sustainability of the universal service, while retaining incentives for Royal Mail to operate efficiently.[2]

We recognise that striking the appropriate balance between the four objectives is a foundational task for the economic regulator and that it presents inherent challenges. We would however welcome Ofcom providing further detail, going beyond the information in the CfI document, on:

• Whether it considers there to be a hierarchy between the objectives for the purposes of this review?
• What specific criteria, data and processes it will apply in order to make a ‘judgement in the round’ on how to fulfil its statutory duties as they relate to the four objectives where these are in tension?

Example from energy: balancing different objectives

The inherent tension between sustainability and affordability is an issue across markets. In the energy sector exists what is called the Energy Trilemma, which refers to the balancing of three dimensions of energy policy:[3]

• Energy security is the ensuring of a reliable and uninterrupted supply of energy,
• Sustainability is the minimisation of the environmental impact of energy production,
• Affordability means minimising the cost of energy for the population.[4]

These competing demands need to be balanced in order to have energy systems that successfully manage competing trade-offs to deliver good consumer outcomes.

Understanding objectives within the postal sector

The postal service arguably has a similar trilemma, with the main considerations concerning:

• Affordability: the accessibility and affordability of postal services for consumers, especially vulnerable and low-income groups.
• Financial sustainability of the USO: financial sustainability refers to the ability of the USO provider to deliver postal services while still maintaining financial viability.
• Quality of service: the quality-of-service element is the ensuring of reliable and uninterrupted delivery to the standards set out by the regulator

As with the energy trilemma, these three dimensions need to be balanced but can often come into conflict with decisions made about how and when one is prioritised above the others.

Due to the possibility of tension between affordability, financial sustainability, and quality of service in any significant regulatory decision, we would encourage Ofcom to provide clarification of its main policy goal in this Call for Input. Although affordability is seemingly the priority, there is also a focus on Royal Mail’s financial viability and questions that remain over quality-of-service standards. We would encourage Ofcom to provide more detail on how these likely competing dimensions will be balanced through the review to create a postal market which delivers for consumers and achieves the right balance between each dimension.

We provide below further context on a number of key issues we identify for postal consumers in Scotland, which inform our response to the objectives and to the Call for Input more broadly. These issues are as follows:

1.    Importance of postal services for consumers in Scotland

2.    Current affordability and value for money of postal services

3.    Quality of service targets and price increases

4.    Concerns about lack of clarity and cost realisation from USO reform

1. Importance of postal services for consumers in Scotland

In considering the affordability of postal services, it is important to set this in the context of the ongoing importance of these services for consumers in Scotland. Postal services are vital for consumers in Scotland, providing an important communications channel and enabling access to a wide range of other markets and services.

In 2023 Consumer Scotland commissioned YouGov plc to survey a representative sample of adults in Scotland on their attitudes to postal services.[6]

Key findings from the research include:

Nearly two thirds of adults in Scotland had sent first (65%) and second-class letters (62%) in the last 12 months, while just over three quarters (77%) had sent parcels.

The most common frequency for sending postal services a letter or parcel was less than once a month (50% sending first class letters, 48% second class letters and 57% parcels).

Younger consumers were less likely to use postal services in the past 12 months.

Letters remain important for consumers to communicate with each other, with birthday cards the most commonly sent form of letter (79% of those consumers who had sent a letter in the last year had sent these).

The majority of those who send letters are writing to family (average of 63%, increasing with age from 47% for 16-24 year olds to 69% for 55+) and friends (average 54%, also rising with age from 47% for 16-24 year olds to 61% for 55+).

For those communications which are not personal, sending letters to government departments, local authorities and banks remains important for consumers, with 31% of letters sent being identity documents.

Ofcom research also evidences the social value of post. More than half of consumers (57%) say they would feel isolated without the ability to send and receive letters and cards.[7]

Recent research by Citizens Advice further highlights the importance of postal services for consumers.[8] Findings include:

• More than 7 in 10 people had received a letter in the past month
• Over 24 million UK adults (46%) sent important 24 information, like benefits paperwork, court documents or ID in the post in the 6 months leading up to June 2023
• Black and minority ethnic consumers, those in receipt of Universal Credit and those aged 18 - 34 are all more likely to use post in this way.

Post can be particularly important for those who are not online. Ofcom’s Connected Nations report (2025) shows that consumers in Scotland have the lowest access to residential full-fibre network coverage of all UK jurisdictions and joint lowest access, with Wales, to gigabit-capable network coverage although we note the improvements year-on-year.[9]

Moreover, sending non-essential post can have a positive impact on wellbeing, especially for those who are older or digitally excluded. This is noted in the qualitative research (Jigsaw, 2025) commissioned by Ofcom.[10] Here, participants described sending non-essential post as a ‘valuable’ or ‘nice’ thing to do, allowing people to maintain contact with a ‘personal touch’ for birthdays and other special events. In this context, it is important that all consumers across Scotland have access to affordable postal services that provide good value for money.

2. Current affordability and value for money of postal services

Consumer Scotland is concerned that there are currently insufficient protections for consumers with regards to the affordability and value for money of postal services. In particular, we note that the price of a first-class stamp has more than doubled during the past six years, from 70p in 2019 to £1.70 from April 2025. As Ofcom notes in the Call for Input, from 2021-2025 there has been a 100% increase in nominal terms, and a 59% increase in real terms.[11]

Postal services can be particularly important for some groups of consumers who are more likely to be on low incomes, for example to send important documents and to engage with essential services. Research from Citizens Advice shows that a third (34%) of people surveyed said they would struggle to manage their finances without post. This rises to almost half for those on a low income (47%) and disabled people (46%).[12]

More broadly, Consumer Scotland analysis has highlighted the differing impact of the cost-of-living crisis for different groups of consumers in Scotland from 2022-2024, particularly:

• the fifth of households in Scotland with the lowest incomes experienced inflation at over 18% between January 2022 and January 2024
• the fifth of households with the highest incomes experienced inflation at less than 14% during the same period. 
• It is important therefore, that the cost of postal services is not considered in isolation, but that proper account is taken of the significant other financial pressures that consumers are experiencing. 

3. Quality of Service Targets and Price Increases

The impact of recent price rises in postal services has been compounded for consumers by Royal Mail’s failure to meet regulatory delivery targets over much of the past decade. In the Call for Input, Ofcom notes that Royal Mail’s Quality of Service has been ‘unacceptable in recent years’ and that measures have been taken to ‘hold Royal Mail to account on its obligations.’ However, these measures have not, as of yet, improved the quality of service provided by Royal Mail. The overall impact of the trends in service provision in recent years is that consumers are paying considerably higher prices for a sub-standard service.  

Ofcom notes that there is a ‘trend of postal users moving away from using First Class all or most of the time that coincides with an upward trend in users using Second Class.’ We would encourage Ofcom to publish more detailed analysis on the reasons it observes for this trend. One hypothesis that should be tested in this analysis is whether the sharp increase in the price of first-class stamps in recent years is driving consumers towards the more affordable second-class stamp option.

Whatever the reasons, the current trend towards second class post indicates that a significant and growing number of consumers may be adversely affected by any decision to relax or remove the current safeguard cap for second class letters.

4. Concerns about lack of clarity and cost realisation from USO reform

The changes made by Ofcom in July 2025 to the regulations for the Universal Service Obligation (USO) to support Royal Mail’s (RM) financial sustainability and improve quality of service have not yet been delivered, as the permitted changes to service delivery models have still to be implemented by Royal Mail. When introduced, Royal Mail has estimated that these changes have the potential to save the company £300 million.[13][14]  

Prior to the introduction of these changes, we note that Royal Mail has returned to profitability according to its reporting of its full year’s results, ending March 2025.[15] In Royal Mail’s annual report (2024-2025) they report that addressed letter revenue had increased by 6.4% during the previous year and that this was “predominantly driven by price increases”.  Addressed letter volume fell by 4% in the 12 months to March 2025, a significant improvement on the 9% decline the previous year.[16]

In this context, with increases in letter revenue and Royal Mail due to realise further savings from USO reform, the concerns set out by Ofcom in the Call for Input around Royal Mail’s financial sustainability, and the potential need for imminent changes to affordability interventions to support this sustainability, are unclear.

Finally, we would note that if a factor in Ofcom’s concerns about Royal Mail’s financially sustainability is the limited progress made by Royal Mail to date in implementing USO changes, then it would be unreasonable for consumers to be exposed to greater risk through the relaxation of affordability protections in order to mitigate this lack of progress by the company. In such circumstances we would encourage Ofcom to consider what other regulatory levers are available to it to incentivise Royal Mail to promptly deliver the permitted USO changes.  

Question 2.2: Do you agree with our planned approach to this review?

Overview

We set out below a number of challenges or concerns we identify with the planned approach to the review.

Limitations of a targeted scheme as a potential alternative to universal price control

Consumer Scotland has significant concerns about any proposals to relax or remove the second-class safeguard cap which have been suggested within the CfI. We have previously recommended that a targeted scheme should only be introduced as an addition to general price protection, such as a safeguard cap. A key reason for this is due to the significant limitations and difficulties that we assess a targeted scheme for postal services would encounter in identifying and reaching low income and vulnerable consumers.

Targeted schemes generally offer relatively narrow definitions of affordability and vulnerability. For example, in the Call for Input (CfI), Ofcom highlights these groups who could benefit from a targeted scheme:

• Older people;
• People on low incomes;
• People in rural areas;
• People without internet access/or poor digital skills;
• People with disabilities.[17]

This approach has some methodological drawbacks. In particular, not all consumers who may be vulnerable or who experience difficulties affording postal services will necessarily fall into one of these categories. It is highly likely that any approach to target specific groups of consumers will miss out other postal consumers who would likely require affordability support but who do not fit within a specified category. Therefore, any targeted scheme inevitably has certain weaknesses compared to a universal intervention, such as a safeguard cap, in that it will almost certainly exclude consumers who could benefit from support.[18] Looking at other markets, in our work on energy affordability we found that ‘[e]ligibility criteria based on social security benefit receipt will inevitably leave some gaps in support because many low-income households are not in receipt of benefits.’[19]

The CfI sets out analysis on how consumers experience the affordability of post within the current pricing arrangements, where there are price controls in place on second-class stamps. However, the document does not provide any detailed modelling of the potential impact of removing or relaxing this protection in favour of a targeted scheme. This appears to be a major gap, as for such a significant regulatory change, modelling of this nature would be essential, to examine the number and characteristics of consumers who may be affected by different price trajectories which may emerge if safeguards were relaxed or removed; and analyse the implications of these different trajectories on the ability of these consumers to access and use post. To advance with the removal or relaxation of the safeguard cap without the provision of such detailed modelling, a sophisticated understanding of the implications and risks and a clear plan to mitigate these risks, would present a significant risk of unintended or unforeseen consumer harm.

We also note that while Ofcom outlines the consumer groups that it identifies may be at risk of experiencing affordability challenges, its subsequent proposals around eligibility for a targeted scheme are narrower, focusing on consumers in receipt of Universal Credit or Pension Credit. Ofcom has recognised that disabled consumers are amongst those likely to be more vulnerable to affordability concerns. We would ask Ofcom to outline why those on PIP/ADP would not be considered as potential recipients and for Ofcom to consider how it can ensure that those consumers who would most benefit from a targeted scheme - which may include disabled consumers - can be included.

Impact of a targeted scheme on quality of service

Ofcom notes in the CfI: "We recognise that stakeholders’ concerns with post pricing are not just about affordability but also reflect concerns about Royal Mail’s poor financial and quality of service performance. Many have suggested we should impose broader price controls for universal services, and access services and some have suggested future price rises should be conditional on improvements in quality of service."[20]

In considering a targeted scheme, and the subsequent potential removal or relaxation of the second-class safeguard cap, the CfI provides limited detail on the extent to which such interventions, or combination of these, would improve Royal Mail’s financial sustainability. It also provides little detail on precisely how such changes would help to achieve improvements in quality of service performance.

Poor quality of service performance can cause consumer detriment including missed hospital appointments, significant issues for small businesses, and loss of income.[21] It is difficult however to understand at present the wider potential consumer benefits, such as improved quality of service performance, of any changes to current pricing and affordability arrangements as limited quantitative analysis of this relationship is provided in the CfI. Given that any easing of price controls would likely have a detrimental effect on prices for many consumers, it is vital that there is clarity about what positive outcomes, such as improved QoS, Ofcom would expect any such change to deliver for consumers. 

Small businesses

With regards to small businesses, Ofcom has set out an approach which considers both Small and Medium Enterprises (SMEs) in a broadly similar way to domestic consumers. However, this approach does not seem to take sufficient account of the different ways in which SMEs may use postal services or provide any modelling of the potential impact for different types of SMEs, were the safeguard cap to be relaxed or removed in favour of a targeted stamps scheme. As above, the absence of such modelling about the potential implications for SMEs of different price trajectories in these scenarios makes it difficult to have confidence that any significant changes to pricing and affordability arrangements would avoid causing detriment to SMEs.

International Comparisons

Consumer Scotland values the consideration in the CfI of international price comparison as this provides an important broader context for interpreting affordability. As Ofcom rightly notes, these comparisons ‘need to be treated with caution’ as there are differences in services, ownership of the universal provider and geography among other factors.[22] Considering the use of international comparisons for pricing of postal products, it would be helpful for Ofcom to offer their reasoning for the countries used in the CfI comparison, beyond their assurance that they consider them ‘comparable to some degree.’[23]

The international pricing provided in the CfI is to showcase that rising letter prices is a global issue, and in this context the UK is still providing postal services at a lower rate than other countries. However, there is additional data that would be useful to present a full and accurate picture of comparator countries.

Ofcom have noted that internationally, prices for postal services have risen, but the only example included in the CfI in terms of the level of recent price rises is the UK, where first-class stamps have increased by 100% in nominal terms since April 2021, and 59% in real terms over the same period.  Ofcom did not provide an international comparison to illustrate whether prices in the UK are rising at the same speed, more slowly or more quickly than elsewhere.

Consumer Scotland would welcome Ofcom providing further research and evidence into the nominal and real term price increases implemented by international USO providers during the past five years, as this will provide a fuller context to understand current pricing trajectories in the UK and the implications of this for future pricing and affordability policy.  

Table 1: Price of non-priority and priority mail in other countries as of August 2025 (reproduced from Ofcom’s Call for Input.[24]

Country	Non-priority mail (100g)	Priority Mail (100g)
Australia	£1.66	N/A
Denmark	£3.39	£4.55
France	£2.42	N/A
Italy	£2.57	£2.61
United Kingdom	£0.87	£1.70

Furthermore, as can be seen in the reproduced table above, the prices serve to suggest that the postal services in the UK are much more affordable than their international counterparts. However, it is not clear how directly comparable these prices are, as there is no context provided for why prices may differ between the selected jurisdictions. As noted above, there are significant differences between different countries in USO providers, geography, economic factors, and variances in how postage was calculated.

We would encourage Ofcom to make the reasoning behind choosing these countries clear, so that we can better understand the comparisons being made and how this relates to affordability in the UK.

To provide further context, we gathered data from a further ten countries and looked at how much they charge for priority and non-priority services, as can be seen below:

Table 2: Country-based comparison of mail prices, and price differential between priority and non-priority mail  

Country	Non-priority	Priority	Differentials between non-priority and priority mail
Canada[25]	£0.77	£1.41	£0.64
Ireland[26]	£1.45	N/A	N/A
Belgium[27]	£2.70	£4.18	£1.48
Netherlands[28]	£3.61	N/A	N/A
Austria[29]	£2.73	£3.40	£0.67
United States of America	£0.59	N/A	N/A
Japan	£0.88	N/A	N/A
Germany	£1.58	N/A	N/A
Switzerland	£0.95	£1.14	£0.19
Norway[30]	£2.82	N/A	N/A

As noted above, there are several factors which influence postage costs and so international comparisons should be treated with caution. However, as can be seen from the data presented in Table 2, the prices to send a non-priority letter ranges from as low as £0.59 in the United States to as high £3.61 in the Netherlands.

Without additional context, these numbers provide only a superficial understanding of postal costs in an international setting. Nevertheless, when this wider group of comparator countries are considered, prices in the UK do not appear to be as low as the international comparison included in the CfI might suggest. For example, the UK’s postal prices for sending non-priority letters are higher than Canada and the United States of America, and comparable to Japan. From this perspective, there may be value in Ofcom further examining the mechanisms that have been used in these countries to manage postal prices and determine if there is any useful learning could be applied in the UK.

Section 3: Assessing the affordability of universal postal services

Question 3.1: Do you agree that our approach to assessing affordability of universal postal services should be similar to previous methods?

While we acknowledge that assessing affordability for universal postal services is a difficult task, we do not agree with the approach taken in Ofcom’s Call for Input, for a number of reasons.

Summary of Key Points:

• Definitions of affordability: there is a risk that the current definition, and underpinning data, masks the true affordability challenges due to the nature of postal spending. In this context, our assessment is that the current methodology has significant limitations.
• Affordability for postal services cannot be untethered from cost-of-living issues. Consideration of cost of living is the context in which pricing takes place. The role of the cost-of-living crisis remains pertinent to affordability across consumer markets, not only postal services.
• The current data we have from ONS is not robust enough to make decisions about postal affordability due to the seasonal and fluctuating spend of postal services
• The letters market is a monopoly, meaning customers don’t have the option to shop about for a better deal and competition cannot be relied upon to manage pricing. Pricing controls are a fair and proportionate mechanism in a monopoly market

Definitions of Affordability

Ofcom’s approach to measuring postal affordability uses ONS data to work out the average household spend on post. However, we are concerned that this approach may underestimate affordability issues in postal services because of the way that ONS data is aggregated. ONS aggregates spending across all households, meaning it captures data from households who rarely need to engage with postal services to those who rely on them. This aggregation of data from all consumers creates difficulties in producing a clear picture on the affordability of postal services for those households who rely on postal services and need to use them regularly. These households may spend considerably more than the average on postal services, but there is a risk that any affordability challenges they experience may be masked within the ‘average’ figure, as they are contained within a larger dataset including households who rarely require the postal service and who have very low levels of spending on it. In addition, the current approach also does not take account of the potential for consumers’ post spending to fluctuate week by week or month by month, which may have implications for affordability.

Affordability of essential services cannot be untethered from wider cost of living challenges

The CFI seeks to disentangle postal affordability from the cost-of-living. While Ofcom recognises that people reporting a reduction in spending on stamps may relate to wider economic pressures and ‘may not necessarily indicate an increase in postal affordability issues’, they note that ‘any regulatory intervention…must be led by the impact of changes in postal prices on affordability and not by the impact of prices of other items.’[31]

However, in our assessment, it is not possible to extricate wider cost-of-living pressures and the affordability of postal products from one another, as they are linked. By definition, ‘affordability’ requires an individual to have sufficient money to buy a product or service. Consumers who are struggling to with insufficient disposable income may have no choice but to spend less on stamps because stamps have become unaffordable for them, as can be seen in Box 2. The context for assessing the affordability of postal prices in the UK has shifted since the cost-of-living crisis, as the capacity of many consumers to afford some products may be different from what it was previously. At the same time, many consumers are now experiencing greater challenges to their wider financial resilience as a legacy of the crisis, such as accrued debt. In this context, the framing of affordability within wider cost of living challenges is critical to ensuring a proper assessment of the affordability of postal services.

Our Research:

Consumer Scotland research found that even prior to four further price rises in 2023, 2024, and 2025, some consumers in Scotland were experiencing significant challenges in the affordability or value for money of postal services:

• 19% of consumers said they would find it difficult to afford to buy a book of second-class stamps (then costing £5.44) when thinking about the following week. 
• Those in C2DE social grades would be more likely to find buying a book of second class stamps difficult than those in ABC1 social grades (25% vs 11%). Women would also be more likely to find this difficult than men (21% vs 16%). 
• 15% of those who send letters or parcels said they had struggled to afford postal services in the last 12 months. 
• 28% of those who struggled to afford postal services said they had to forgo paying for or using essentials, such as food or energy, in order to pay for postage.

These numbers indicate that a high proportion of consumers in Scotland require protection and support to ensure that postal services remain available and affordable for them.

Alternative Definitions of Affordability

To inform the next stages of Ofcom’s work on pricing and affordability, we recommend that Ofcom examines the development of an alternative approach to defining affordability. We suggest that this definition assesses affordability based on households that regularly use post and calculates monthly expenditure on post as a proportion of disposable income, alongside other essential costs. Research undertaken by Citizens Advice, has shown that ‘[t]he figure for the average spend on post among households that use post is 6 times higher than the average for all households.’ [32]  A definition of affordability which accounts for those consumers who are most dependent on the postal service would have the potential to provide a more accurate picture of the proportion of disposable income spent on post by regular service users; help to identify specific affordability challenges; and inform appropriate interventions to tackle these issues.

At present, the available data on postal usage is not sufficient to provide a robust analysis against this proposed definition. We recommend that Ofcom considers extending its postal monitoring tracker to collect this specific data, and we would be pleased to work with the regulator to develop this approach further.

The importance of price control in monopoly markets

Price caps have an important role to play across markets, but in a monopoly market they become even more vital to ensure affordability, fairness, and equity for consumers. In sectors where competition cannot effectively constrain prices, such as postal services, water or energy networks, regulatory intervention is necessary to prevent excessive charges. Ofgem’s price control framework for energy pricing illustrates this principle: it sets out the basis on which network companies can earn a return, balancing fair value for consumers with a fair rate of return for companies.[33] This approach ensures that consumers are protected from monopoly pricing while allowing firms to recover efficient costs and invest in maintaining and improving infrastructure. Without such controls, monopoly providers could exploit their position, leading to unaffordable prices and consumer harm.

Price caps are essential in the postal sector because Royal Mail operates as a monopoly in the letters market. With no competition for the universal service obligation in letters delivery, consumers rely solely on Royal Mail to deliver letters. This lack of competitive pressure requires some form of price control as an important incentive to drive efficiency and service improvement. Without such a mechanism there is a risk that inefficiencies are passed on to consumers through rising prices, and consumers have limited power to respond to this as they do not have the option of switching provider. In the context of affordability, this creates particular risks for those on low incomes, those who are digitally excluded and those who rely on postal services, including small businesses.

Question 3.2: Do you agree with our initial observations from preliminary analysis of ONS data and market research?

Consumer Scotland partially agrees. As noted above, we have some concerns about the efficacy of the ONS data analysis as it may mask affordability issues by averaging spend on post across all households, including those who do not use postal services, and so has limitations as a reliable measure. In addition, while we welcome the market research commissioned by Ofcom, we would again reiterate that across energy, water, and telecommunications markets, social tariffs and targeted schemes are used in conjunction with other mechanisms that limit price rises for all consumers.

Affordability and Detriment

In the CfI, there is scepticism about the extent of detriment caused by affordability issues, with some suggesting that challenges are one-off rather than ongoing. However, even occasional affordability barriers can have significant consequences. While robust quantitative evidence is limited, our research indicates that concerns about cost have influenced consumer behaviour, suggesting that rising prices may be contributing to declining postal volumes.[34] This finding is reinforced by the Jigsaw report, where participants described sending postal items as a “luxury” they could scarcely afford – even when those items were essential.

Jigsaw Report: Queries

We welcome Ofcom’s research around the targeted stamp scheme. We have identified a number of questions relating to the research and its presentation in the CfI that we would seek clarification from Ofcom on:

• Potential target groups for a possible targeted stamp scheme suggested to research participants included those on Universal Credit (UC), Personal Independence Payments (PIP), and Pension Credit. However, Scotland has devolved benefits and is currently switching people on PIP to Adult Disability Payment (ADP).[35] Although PIP/ADP seems currently excluded from eligibility, it is important to note that, if the scheme is broadened to this group, Ofcom would need to consider how consumers in receipt of relevant devolved benefits would be taken account of in the design of any future targeted scheme.
• As highlighted above, in Ofcom’s initial proposals for eligibility for a targeted scheme, PIP was not one of the listed benefits. Disabled people are frequent users of postal services (see Box 3) and are more likely to have broader issues with affordability due poorer financial wellbeing.[36] As such, we would ask Ofcom to outline why those on PIP/ADP would not be considered as potential recipients and for Ofcom to consider how it can ensure that those consumers who would most benefit from a targeted scheme - which may include disabled consumers - would be included.
• We would welcome Ofcom clarifying whether participants in the research knew that the targeted stamps scheme could be additional and that the safeguard cap on second-class does not have to be removed; or whether they were asked to consider one as a replacement or alternative to the cap. 
• There were a number of perspectives shared by participants in the research that did not appear to be fully reflected in the CfI. For example:

o   The researchers noted that ‘Participants felt strongly that the price of stamps has increased significantly over time, especially in the last five years’[37]

o   Due to these recent stamp price increases, research participants noted that post had become a ‘luxury’ because cost, especially for those on benefits, was ‘the most frequently mentioned barrier to not sending more letters’.[38]

o   Participants also pondered the idea that ‘other potentially deserving low-income groups not in receipt of benefits’ would miss out on the scheme, suggesting that participants did not think the scheme was broad enough.[39]

Each of these points provide important context for considering postal affordability and the importance of broad affordability interventions and we would encourage Ofcom to give these due consideration as it develops the next stages of its work.

Citizens Advice research on Disabled People and Postal Services:[40]

Disabled consumers use postal services frequently:

• Disabled people are more likely to use the post as a means of contacting others than non-disabled people (62% v 52%).
• 28% of disabled people send items in the post at least once a week.
• 53% of disabled people receive online retail parcels through the post in the past 6 months.
• 77% of disabled people received letters or postcards through the post.
• 60% had a parcel, signed for letter or recorded item sent to their home.
• 37% collected a parcel, signed for letter or recorded item from a depot, Royal Mail delivery office or pick up location.

Concerns for small businesses

The Scottish Government’s small business report estimated that there are 352,000 small and micro businesses in Scotland representing 98% of all businesses and contributing to 27.3% of all turnover.[41] As significant contributors to the UK economy, the impact of affordability on small businesses is critical to meeting the UK Government’s driving economic growth mission.[42]

In the CfI Ofcom indicates that it regards small businesses as being similar to domestic consumers, and if postal services are affordable for domestic consumers, then they would be affordable to small businesses.

We would highlight two challenges to that approach:

• Many small businesses rely on postal services to operate their business. If there was a significant rise in the costs of second class stamps due to relaxation or removal of the safeguard cap, then this could have a considerable impact on expenditure for small businesses that are frequent users of the postal service. 
• If a targeted scheme were to be developed then it would not be available to SMEs, so while a scheme may help some domestic consumers with affordability challenges it will not support any small or micro businesses.

Question 5.1: Do you have any comments on our initial views set out in paragraphs 5.2-5.16 in Section 5 on whether there is a case for Ofcom to move away from its existing approach to price regulation of Royal Mail’s letter services based on considerations other than affordability?

Consumer Scotland welcomes the opportunity to explore whether a revised approach to price regulation could deliver fairer pricing for postal products. Ofcom’s own analysis confirms that the current framework has failed to achieve two critical objectives: driving efficiency within Royal Mail and protecting postal users from significant price increases.

When considering reform of pricing regulation, we could urge Ofcom to consider how any reformed approach meets the policy objectives outlined in the ‘trilemma approach’ set out earlier in our response.

In a monopoly market, proportionate and effective price controls are essential. Competition cannot be relied upon to provide price signals that incentivise efficiency, ensure cost recovery, and deliver value for money for consumers. Any future price control must strike the right balance – supporting cost recovery and operational efficiency for Royal Mail while safeguarding captive consumers from inefficient or ineffective business practices.

Given Royal Mail’s status as a monopoly provider and its recent track record on efficiency, poor Quality of Service and rising prices, Consumer Scotland urges Ofcom to maintain a robust and effective price control regime to protect consumers and ensure efficiency, fairness and accountability.

Consumer Scotland, along with other stakeholders, has previously highlighted concerns that consumers may be being asked to pay higher prices for products such as first-class letters to offset inefficiencies in Royal Mail’s operations. Ofcom highlights that in recent years Royal Mail has not made sufficient progress towards achieving efficiency gains. Ofcom notes that in response to this, it has required Royal Mail to be more transparent about its progress on this issue and to publish 5-year plan for efficiency targets, with an annual progress report against these targets, which began in 2023. However, the CfI also notes that for 2023-2024, Royal Mail’s reported efficiencies fell significantly short of the improvements required in order to meet its published targets.

We would welcome Ofcom providing more evidence to support its observation that the current arrangements are sufficiently delivering improved efficiencies at Royal Mail. Given the challenges that Ofcom has previously identified in relation to this issue, we are not clear how removing or relaxing a key efficiency safeguard, in terms of the safeguard cap on second class mail, is likely to be beneficial for consumers in terms of protecting them from paying for inefficient operational delivery.  

Value for money

Ofcom notes ‘consumers do not perceive that they are getting value for money nor feel the price increases have been justified’.

This Call for Input provides an opportunity to refresh how value for money is considered within Ofcom’s regulation of the USO and consider different approaches to tackle the persistent problems that consumers have experienced over a number of years, of rising prices combined with quality of service performance by Royal Mail that is consistently below regulatory targets.

With a lack of competition in a monopoly market, there is a clear role for Ofcom, as the regulator to take a robust approach to addressing this significant value for money challenge. Any changes to Ofcom’s approach to price controls in the postal sector should have a clear focus on improving value for money, alongside affordability.  

There is strong useful precedent from other monopoly markets for considering for prioritising VfM in monopoly regulation. For example:

• Energy Networks (RIIO Framework): Ofgem’s five-year price control model aims to ensure costs are minimised while enabling investment for long-term sustainability. Value for money is a key consideration, balancing cost recovery with affordability for consumers.
• Water and Sewerage in Scotland: The regulator, the water Industry Commission for Scotland, sets a six-year determination for the monopoly provider Scottish Water. This sets out the maximum level of consumer charges during that period against the specific services that will be provided.

What is needed from existing or reformed price control?

To fully assess options, Consumer Scotland seeks clarity on the modelling underpinning each approach and whether it strengthens value for money for consumers.

Particular features that we would wish to see from future Ofcom work on price control include:

• Scrutiny and transparency of cost allocation: Clear cost allocation for all components of any price cap or alternative regime, similar to energy market price cap methodologies. This would likely be reflected in the cost-based charge control and could be integrated into the pre-authorisation regime.
• Reporting of Royal Mail’s efficiency: Transparent reporting of Royal Mail’s efficiency progress to ensure consumers are not paying for inefficiency. Ofcom’s current requirements should be integrated into any new framework.
• Sufficient consumer challenge: which is seen in other markets such as Customer Challenge Groups in water and energy markets (also monopoly markets). This would be viable in any presented option but is already seen in cost-based charge control and pre-authorisation regimes.
• Adaptable to changing volume dynamics: while also enabling consumers to use the postal service as they wish. Any price control based on review periods for a defined period of time would support the ability to adapt to changing market dynamics and volumes of letters.

Consumer Scotland will consider the merits of different approaches in due course but notes that a profitability cap may offer less transparency than cost-based models. Lessons from other markets (particularly monopoly markets) demonstrate how price controls can enable robust scrutiny and challenge.

Question 5.2: Do you have any comments on Ofcom’s plans to examine aspects of the margin squeeze rule for access prices?

Not answered