Review of Second Class safeguard caps 2024
Question 1: Do you agree with our assessment that our proposals will not discriminate against any groups with protected characteristics? Please state your reasons and provide evidence to support your view.
Ofcom’s review identifies three groups with protected groups as potentially the most affected by increases in postal prices:
- Older people (aged 55+)
- People in ethnic minority groups,
- People with disabilities
However, Ofcom concludes “there is no specific evidence that these groups have a different set of affordability concerns from the general community” with regard to postal services.
We would encourage Ofcom to give further consideration to the circumstances of disabled postal consumers and the potential impact of the proposals for these consumers. In particular, consideration should be given as to whether the approach to affordability sufficiently takes account of the experiences of disabled consumers and the importance of the postal services for these consumers.
General affordability concerns for disabled consumers
Analysis by Scope, a disability equality charity, found that on average disabled households need an additional £975 a month to secure the same standards of living as non-disabled households.
In December 2022 a report published by the House of Lords Library set out the impact of rising costs for disabled people, particularly in relation to essential goods and services such as food and energy, the prices of which have risen significantly during the cost of living crisis.
In January 2023, the Resolution Foundation published a report which highlighted that disabled consumers face a significant gap in income of up to 44%, compared to those without a disability. Even taking into account disability benefits, disabled consumers face generally higher costs in their day to day lives. The report suggests that disabled people are almost three times more likely to be materially deprived than the general population (34% compared to 13%).
Postal affordability for disabled consumers
In spring 2023 Consumer Scotland commissioned a survey from YouGov of 2,007 people from across Scotland.
Our survey found that nearly 1 in 4 (23%) participants with a disability or long term health condition who send letters and parcels stated that they had struggled in the last 12 months to afford using postal services, rising to nearly 1 in 3 of those limited a lot (32%). This compares to 11% of participants who do not have a disability. Of those that had struggled to afford postal services, 1 in 3 (34%) with a disability or long term health condition had to forgo essentials, such as food or energy, to pay to use postal services, in comparison to 17% of non-disabled participants.
The survey asked how easy or difficult participants would find it to afford a book of 8 second class stamps the following week. The survey found that nearly 1 in 3 (31%) consumers with a disability or long term health condition would find such a purchase difficult, compared to 12% of non-disabled consumers.
We also asked participants who they send letters to. Our analysis shows that consumers in Scotland with a disability or long term health condition were also significantly more likely to send letters to local authorities (30% vs 18%), to government departments (47% vs 33%) and to their GP or other healthcare professionals (17% vs 9%) compared to non-disabled consumers
Our research findings also showed that those with disabilities or long term health conditions that limited them a lot were more likely than individuals without a disability to send benefit application forms (38% vs 8%) or to send supporting information to an organisation that offers help and advice (18% vs 8%).
When asked to consider the cost of a 1st class stamp, those with a disability or long term health condition that limited them a lot were most likely to view 1st class (38% vs 25%) and 2nd class stamps (25% vs 17%) as far too expensive when compared to non-disabled consumers.
When asked for their views on the costs of second class parcels, 1 in 5 (18%) of those who are limited a lot by their disability or long term health condition said they found this product far too expensive, compared to 11% of non-disabled consumers. This difference was more pronounced for first class parcels, with 28% of consumers with a disability or health condition that limited them a lot stating that the price was ‘far too expensive’, compared to 15% of non-disabled consumers.
Currently Royal Mail offers an online-only price for conveying a small 2nd class parcel under 2kg at £2.99, while those without online purchase options who use their local Post Office must pay £3.49 – a difference of over 15%.
For these parcel services, there is therefore a premium being paid by consumers who are not able to make this purchase online, which may include those who do not have access to decent quality telecommunications services or who are digitally excluded for other reasons . This pricing structure may also disadvantage consumers in Scotland who may require in-person assistance to send a package through a local post office. This is of particular concern as analysis from the ONS suggests that disabled adults are less likely to use the internet than those who are not disabled. In 2018, approximately 23% of disabled adults did not use the internet, compared to 6% of adults without a disability.
Additionally, those in rural areas may face further barriers due to lack of access to suitable alternative telecommunications services. Ofcom’s Connected Nations Report for Scotland estimates there remain 21,000 homes and businesses in Scotland without access to a “decent broadband connection,” while 8,000 premises are not able to receive decent broadband or “good indoors 4G coverage.”
Postal affordability concerns for older people
Our research found that those aged 55+ in Scotland were most likely to send letters as well as to state that the cost of posting letters is too expensive.
Personal correspondence including letters, birthday cards and Christmas cards to friends and family were the main uses of letter services by those older people, particularly for those aged 65+. The 55+ age group was also most likely to send identity documents and cheque payments through the post.
Of those aged 65+, 4 in 10 (39%) and 1 in 4 (24%) viewed first class and second class letters as far too expensive respectively. As a comparison, only 16% of those in 25-34 age group, and 27% of the sample overall, viewed first class letters as far too expensive, and only 10% and 18% respectively stated the same for second class prices.
Postal affordability concerns for ethnic minority groups
Our research did not identify any specific affordability concerns for ethnic minority consumers in Scotland in the use of postal services. However, this group made up a relatively small proportion of our survey sample.
Further analysis
Our evidence indicates that there are some concerns about the affordability of postal services amongst older people in Scotland; while there are more substantial concerns amongst disabled consumers in Scotland and those with a life limiting condition. We would welcome Ofcom giving further consideration to whether any further action is required to protect the interests of these groups of consumers in ensuring that postal services remain affordable.
In addition, we would welcome Ofcom considering further its approach to consumers with compound vulnerabilities as part of its review We would encourage Ofcom to set out its understanding of compound vulnerabilities and how those consumers who face postal affordability issues are impacted. For example, consumers with disabilities or long term health conditions who are over 55+ and living in a rural or remote area in Scotland may face a range of barriers to accessing different communications services, including post. Addressing the needs of those consumers with compound vulnerable circumstances would ensure that this and other reviews fully consider any additional measures that may be required to ensure positive outcomes are achieved for these consumers.
Question 2: Do you agree with our assessment under the Welsh Language Policy Marking Standards? Please state your reasons and provide evidence to support your view.
We have no comment to make on this assessment.
Question 3: Do you agree with the objectives we propose to use for our review of safeguard caps? Please state your reasons and provide evidence to support your view.
Consumer Scotland agree in principle with the objectives used in the review of safeguard caps.
We believe that Ofcom could provide further clarity to strengthen the review process and support more focused feedback from stakeholders.
Regarding the objective to “Provide protection to consumers where such protection is unlikely to be provided by competitive markets”. Ofcom is continuing to ensure this is the case for second class stamps by capping price rises given that Royal Mail holds an effective monopoly in letter services. However, as we set out, without a more comprehensive assessment of the parcels market and routes to access it being provided by Ofcom in this review, there is no certainty that the removal of the parcel cap will lead to positive outcomes for consumers, particularly for those who, for example, may lack access to the internet or not feel confident using digital solutions.
In general, the review would also benefit from Ofcom setting out more explicitly if any priority or weighting is provided to specific objectives over others. This would allow stakeholders to provide a more informed response to subsequent reviews.
Question 4: Do you agree with our analysis of the market in relation to Second Class standard letters and large letters? Please state your reasons and provide evidence to support your view.
As outlined throughout our response, Consumer Scotland has some concerns that the analysis of the market does not fully reflect the potential impacts of price rises on specific groups of consumers and small businesses. We believe this has specific relevance to Ofcom’s objectives regarding the consultation, particularly the need to ensure that universal services are affordable, and to provide consumer protection where this is not being achieved by the competitive market.
As we have set out in our evidence above, some domestic consumers are not able to make use of e-substitution alternatives or online services and so will require affordable access to postal services for the foreseeable future in order to engage with essential services. Some forms and documents must be sent in a physical format and the progress of digitisation may have slowed due to the costs of supporting the wider economy during and after the pandemic and also from the cost of living crisis, as investment in wider digitisation of services may have been hampered.
As our evidence shows, it is particularly important for consumers with disabilities and long term health conditions to be able to send documents to GPs, local authorities and government departments. Increasing the costs of sending this documentation will be detrimental to those consumers.
As a further example of some of the more specific effects, small businesses who do not have the capacity to purchase a franking machine or scale to access more competitive commercial offers for letters services, the overall increased costs for both second class and large letters may have a significant impact.
Question 5: Do you agree with our analysis of the market in relation to Second Class parcels up to 2kg? Please state your reasons and provide evidence to support your view.
Under the objectives, Ofcom proposes to “provide protection where such protection is unlikely to be provided by competitive markets.”
Ofcom sets out in its assessment that, in its consideration, there are sufficient access points to the market for parcels.
We believe that further consideration could be given here to the availability of telecoms in particularly rural or remote areas, as well as the decline in the quality/range of the services delivered by Post Office branches in some areas. Both of these services act as crucial enablers to facilitate access to the parcels market in a broader sense, and so Consumer Scotland would suggest that a fully comprehensive analysis of the parcels market would need to consider where disparities in access to these supplementary services may exist in the different nations and regions of the UK.
A Citizens Advice report in 2023 found that more than half of consumers (57%) were sending parcels from a post office. As highlighted above, there remain groups of consumers in some rural areas in Scotland without access to decent quality of telecoms services and there remains a proportion of consumers who, for a range of reasons, are not able to purchase goods and services online. These consumers would, due to their circumstances, be required to pay the in-person price of £3.49 when sending second class parcels, rather than the online only direct price of £2.99 from Royal Mail.
As Citizens Advice note in their analysis of the Post Office network in January 2022, almost 1 in 4 (23%) of rural residents across the UK use a Post Office at least once a week, compared to 17% of urban residents. Those who are in need of additional help to use parcel services, or people who don’t use the internet, need to use a post office to send parcels. Citizens Advice found that 1 in 3 rural post offices in Britian are provided as part-time outreach branches, which are open for an average of 5 and a half hours a week. This more limited access to Post Offices for rural consumers will have an impact on those consumers who require a post office in order to use parcel services.
From a cost and competition perspective, if rural consumers do not have access to Post Office services, including where new products are being developed, such as collection from other parcel operators, then competition will not deliver additional benefit and those living locally will be reliant upon Royal Mail services only.
Consumer Scotland considers it would support the analysis of the competitiveness (and access to competitive alternatives) of the market further if there was a broader consideration of the distribution of the different types of Post Office branches (and their differential services). A similar level of analysis could be applied to the distribution of the schemes being piloted or rolled out by different commercial providers, some of which are outlined in the section 4.74 of the consultation.
Question 6: Do you agree with our approach to assessing affordability of postal services? Please state your reasons and provide evidence to support your view.
As we have set out above in our response to Question 1, some consumer groups already face detriment from the cost of postal services.
Equally, our data does show some general affordability concerns, with our survey demonstrating that 19% of participants would find it ‘difficult’ to buy a book of 8 second class stamps if they had to do so in the next week.
15% of our research participants had struggled to afford postal services in the last year, and of that group, 28% had to forgo essentials, such as food or energy, to afford postal services.
Aside from our evidence set out earlier in the consultation with particular regard to disabled consumers or those with a long-term health condition, we believe there are some areas where Ofcom could consider if more nuance or further detail is required to inform its approach.
One particular area of concern is the potential for digital exclusion to make postal prices less affordable for consumers. We have outlined in our response some concerns as to the pricing differential and how this may disproportionately impact certain groups of individuals.
While Ofcom notes in the consultation that the rates of online purchase are increasing (4.76) and the potential for positive competition related effects of this (4.75). Ofcom should closely monitor how these changes in behaviour may impact those that are digitally excluded (particularly if the price differential widens).
In addition, Ofcom has not provided an assessment of redirection services, which for many consumers is an important facility.
In 2022-23, consumers were charged a fee of £33.99 to redirect post for a 3-month period. This cost increased to £36 from April 2023.
Royal Mail also offers a concessionary rate scheme for redirection services for consumers in receipt of specific benefits. This scheme was expanded in November 2021, increasing the level of discount available and broadening coverage to include a wider range of benefits.
As part of its Review of Postal Services, Ofcom gathered evidence during 2021 on the affordability of redirection services. It found that 3 in 10 consumers would not be able to afford to use the service at the price of £33.99 for 3 months.
Consumer Scotland’s research found that 7 in 10 consumers (68%) in Scotland regard standard redirection services as too expensive. This is particularly true for those on lower incomes, with 73% of those with gross household income under £20,000 regarding this service as too expensive. Consumers with a disability or long term health condition were also more likely to say that redirection was too expensive, with only 1 in 5 of these consumers saying that the product was a fair price or cheap.
Royal Mail received a total of 4,700 applications from across the UK for its expanded concessionary scheme in 2022-23. Department for Work and Pensions data show that there were 6.1 million people in receipt of Universal Credit in July 2023. Given these figures, we are concerned that not all consumers in Scotland who are eligible for the concessionary redirection scheme are currently making use of this service. We would encourage Ofcom to undertake further analysis to assess the current take up rate of the scheme, in terms of the proportion of eligible consumers each year who are making use of it. Further active promotional activity then may be required to ensure that all eligible consumers are aware of the scheme and are encouraged to make use of it when they need it.
In addition, our data suggests that many consumers in Scotland, who fall outside the eligibility criteria for the concessionary redirection scheme, regard the standard redirection service as too expensive. Further consideration is required as to any additional interventions that may be needed to ensure that redirection is affordable for all consumers.
Question 7: Do you agree with our assessment of the affordability of Second Class postal prices? Please state your reasons and provide evidence to support your view.
We disagree with Ofcom’s assessment on the affordability of Second Class postal prices.
As we set out in our evidence above, while consumers are sending fewer letters, and e-substitution is a viable option for many, Ofcom’s evidence shows in 5.25 that 1 in 4 (26%) were sending formal letters in the last month and 1 in 5 (19%) paying a bill or invoice by post. These numbers are significant as it highlights that people must be able to use letters to communicate and engage in these essential activities.
Our evidence suggests that there are consumers in vulnerable circumstances who must send letters to communicate with and gain access to essential services. There is some acknowledgement of this crucial use case within the consultation document itself (5.28), which outlines that individuals may need to ‘send supporting information or forms to an official body or provider’.
Furthermore, and as we have set out in our response, there is no analysis of competition across the UK in the parcel market that addresses alternatives to Royal Mail and affordability of services. A broader assessment of the competitiveness of the market could challenge the position that postal services are affordable and that they will remain so.
We provide further comment on the additional factors that such an analysis could consider throughout our response.
Question 8: Do you agree with our analysis of the impact of the caps on the financial sustainability of the universal service? Please state your reasons and provide evidence to support your view.
Consumer Scotland consider that caps are justified in order to sustain the concept of affordability as a that a core tenet of the USO.
Our evidence suggests that some consumers were already struggling with last year’s prices of postal services. As we have outlined, letters remain crucial communication methods for many consumers, particularly those in rural and remote areas. They use such services to communicate with their friends and family but also with essential service providers.
Further, some institutions such as the NHS and other public bodies still communicate via letter. This suggest that, without some alternative, accessible means of sending sensitive and critical documentation, postal services will remain a vital communication route for many as well as supporting access to vital services.
Finally, although our recent research did not cover this specifically it would seem likely that recent changes regarding the requirement to have photo identification to vote in specific UK elections means that some consumers in Scotland will need to use postal services in the forthcoming period to apply for the relevant identification.
Given the essential nature of the service to support consumers to exercise these key functions and the absence of competitive factors as an alternative to drive positive consumer outcomes, the cost of imposing caps is a fair one for the Universal Service Provider to bear.
Question 9: Do you agree with our proposal for the structure of the safeguard cap to be based on a single basket which includes Second Class standard and large letters? Please state your reasons and provide evidence to support your view.
As set out in the consultation, Ofcom’s proposal is to maintain the cap on standard class and large second class letters, but combine these into a single weighted basket cap.
Effectively, as a further proposal in this consultation is to remove the second class parcels cap (which is currently basketed with large letters) – Ofcom’s proposal is to create a restructured basket cap which includes both standard and large letters. This is as opposed to the current structure, in which there is a separate cap for second class standard letters, and another for second class large letters and parcels up to 2kg.
Consumer Scotland welcome the cap being applied to large letters as there would be a benefit to small businesses in particular who rely on of those services.
If Ofcom intends to progress with a cap on second class large letters, Consumer Scotland are of the view that it would be better to cap it separately to ensure that detrimental outcomes for groups vulnerable to postal affordability issues are protected and that the universal postal service is affordable for consumers. As Ofcom set out in the consultation document (7.18) this option has been considered, but provisionally rejected. Ofcom states that the main reason for rejecting this option is to provide Royal Mail with significant commercial flexibility and ensure the sustainability of the USO.
Consumer Scotland’s preference would be for the ‘tighter constraints’ which Ofcom recognises that separate caps would provide on these services, given the affordability concerns we have outlined from consumers.
A separate cap would also support consumer understanding and future expectations of pricing going forward, rather than a volume-linked, weighted cap which adds further complexity to the pricing model and may not be clear to consumers.
Finally, while we appreciate that Ofcom must balance the need to ensure the USO is financially sustainable, the review is taking place in the context of particularly acute cost of living pressures on consumers. As outlined by Ofcom, the capped services also account for less than 5% of the revenue of the Reported Business metric. Therefore, this is a relatively minor element of the financial sustainability of those Royal Mail services, and separate caps would still allow for some level of pricing flexibility to reflect this.
Consumer Scotland recommends that the decision to provisionally reject this course of action is reconsidered.
Question 10: Do you agree with our proposal to set the basket cap for Second Class standard and large letters at current prices plus CPI? Please state your reasons and provide evidence to support your view.
Consumer Scotland would recommend that Ofcom consider this approach in more detail.
While CPI is generally an accepted benchmark for determining the uprating of various prices and in other areas, such as taxation and social benefits, CPI inflation has reached historically high levels over the course of the last twelve months and there are instances where increases in wages has not kept pace with CPI inflation. The make-up of the basket of goods used in CPI may mean, at any particular time, the cost of delivery of postal services are not particularly sensitive to the factors driving the CPI rate.
At the time of writing, there are signs that this appears to be unwinding, which is supported by the OBR forecasts as outlined in the consultation (2.33), and in recent ONS data.
However, given the current challenges with the rate of inflation, Consumer Scotland would suggest that Ofcom should consider if safeguards are necessary in the event that inflation does not decline to the levels currently predicted. Equally, this would also provide protection if economic events lead to heightened inflation across the price cap period. Research carried out by Consumer Scotland has found that one-third of consumers in Scotland are not managing well financially. An understanding of the significant, wider financial pressures facing many consumers should form an important part of Ofcom’s price cap assessment.
One approach could include Ofcom setting out a process under which it may consider implementing an adjustment to the cap which is below the rate of CPI inflation. This would further protect low income households from inflation linked price increases.
This may be particularly appropriate if the core drivers of CPI inflation in a certain period are more likely to impact disposable income for consumers (e.g. concentrated in areas such as food and non-alcoholic beverages), and these drivers are not directly impacting Royal Mail’s cost base and the cost of service delivery.
In essence, while CPI is an accepted measure historically for uprating the level of the cap, Ofcom should remain cognisant of cost of living pressures and inflationary effects on consumers, and consider whether some safeguards could be built into the uprating process to reflect this. We do note that Ofcom has considered this in the structure of the safeguard cap itself (e.g. by not applying a one-off adjustment), but given the unpredictability of inflation in recent years, it appears prudent to consider if further safeguards to the annual uprating process are appropriate.
Question 11: Do you agree with our proposal to set the cap for five years? Please state your reasons and provide evidence to support your view.
Consumer Scotland agree that a five year period for the cap will provide a reasonable level of certainty for consumers.
The level of certainty will, to some extent, be constrained by the annual price uplift mechanism. In parcels, the proposed removal of the cap will also create a further level of uncertainty for consumers and small businesses that engage with these services.
Consumer Scotland would suggest that Ofcom should outline, in more detail, how it intends to ensure that consumers are safeguarded from significant price rises during the 2024-2029 period.
As we outline in our answers to question 10 and question 13, Ofcom should set out more specific safeguards for each of these areas alongside the final decision statement later in the year.
Question 12: Do you agree with the structure of the basket set out in Annex 5 in which stamp prices are weighted by volumes of each service type based on the volumes measured two years prior to the control? Please state your reasons and provide evidence to support your view.
As set out somewhat in our response to Question 9 – Consumer Scotland has some concerns regarding the structure of the weighted basket cap. We do not have any further comments beyond those set out in our response to question 9.
Question 13: Do you agree with our proposal to remove the safeguard cap from Second Class parcels up to 2kg? Please state your reasons and provide evidence to support your view.
Consumer Scotland do not agree with the proposal to remove the safeguard cap from Second Class parcels up to 2kg.
As we note above, there does not appear to have been a comprehensive assessment undertaken for how competitive the market is for all consumers across the UK, and Ofcom’s review does not indicate how consumers in rural and remote areas in Scotland would benefit from the removal of the cap.
For the proposal to remove the cap to be effective it would be necessary to demonstrate that the competitive factors which constrain Royal Mail’s pricing are applicable across the entire geography of the United Kingdom. As an example, a more comprehensive analysis of the distribution (not just the number) of access points and potential regional disparities across these would give a clearer view of the level of access to alternative providers across the UK as a whole. While there is some reflection in the consultation document (4.72) that the coverage of alternative networks is lower in rural areas, the level of disparity is not clearly illustrated by Ofcom’s analysis.
The consultation document (7.11) also sets out that it remains open to Ofcom to reimpose a safeguard cap dependent on Royal Mail’s pricing behaviour.
If Ofcom does opt to remove the safeguard cap from Second Class parcels, Consumer Scotland would recommend that a formal review process should be built in, within the 2024-2029 pricing period, to determine whether the reimposition of a cap is necessary. To support such a review, Ofcom should also set out in advance, the thresholds which would determine the reimposition of the cap.
Question 14: Do you consider that there is value in developing a targeted scheme focussing on vulnerable consumers? If yes, your views on characteristics of such a scheme including target groups, nature of support and delivery options. Please state your reasons and provide evidence to support your view.
Consumer Scotland would support Ofcom giving consideration to the development of a targeted scheme focusing on consumers in vulnerable circumstances, provided such a scheme was being considered as an addition to existing consumer protection measures – including the safeguard price caps – and not as potential replacement, or dilution, of these existing arrangements.
The existing safeguard caps provides protection for all consumers in Scotland, all of whom are currently experiencing considerable cost of living pressures. It is therefore very different in nature and purpose from any targeted scheme. We would not be supportive of a narrower, targeted scheme if it were to dilute or replace the essential existing protection mechanisms, including the safeguard cap.
The energy market, as an example, provides both a market-wide price cap and additional affordability interventions targeted at specific groups of consumers in vulnerable circumstances.
If Ofcom were to consider the development of a targeted scheme to support certain groups of postal consumers, to augment the existing price cap measures and provide additional affordability support to consumers, then we would be pleased to engage further with Ofcom on this process.
Particular issues that we would expect any such process to explore would be as follows:
- Which groups of consumers should be targeted and supported through such an additional affordability scheme
- The level of discount / financial support provided to these consumers
- How eligible consumers are able to access the scheme, to ensure a high level of take-up
- The regulatory protections that might exist around such a scheme, to provide certainty for consumers
- The costs of delivering and providing such a scheme, and any implications this may have for other postal consumers in Scotland
- The interaction between any such scheme and similar schemes designed to support consumers on low incomes, such as the broadband social tariff, to ensure these work in a complementary way to maximise consumer benefit
- The systems to test, monitor and evaluate any such scheme, to ensure it is delivering positive outcomes for consumers
Question 15: Do you have any other comments on the proposed modifications to the relevant DUSP conditions through which we propose to implement our proposals, attached in Annex 5? Please state your reasons and provide evidence to support your view.
Consumer Scotland has no additional comments on the DUSP conditions.