David Cheskin/PA

Privatisation of Royal Mail could lead to changes in the Universal Service Agreement (USO), according to a report in the The Telegraph.

There are fears that the USO, which legally requires Royal Mail to deliver post to every address in the UK six days a week at "uniform and affordable prices", is under threat due to the high cost of meeting the requirement.


As plans continue for the highest profile privatisation since the 1990s, government sources close to The Telegraph have disclosed that the USO is becoming unsustainable and changes need to be addressed as part of the sale.

However there are fears that moves to change to the USO could undermine the service obligations of Royal Mail, which currently require that the cost of posting a letter to any address is the same throughout the UK.

Boost in profits
The concerns have been voiced as the privitisation gains fresh momentum following a boost in Royal Mail half-year profits last month, thanks to stamp price hikes in April of up to 40%.

Group operating profits in the six months to September were £144m, compared with £12m in the same period last year.

The group, which delivers around 58m items a day in the UK, said parcel revenue had increased 13%, with parcels representing 47% of total group revenue. Revenue from letters was 2% higher following the increase in stamp prices, although letter volumes fell by 9%.

Changes needed
Royal Mail regulator, Ofcom, has long recognised that new measures are required to make the USO financially sustainable amid declines in postal volumes, and last year published proposals to ensure that UK consumers continue to benefit from the service.

Ofcom's Group Director of Competition Stuart McIntosh said: "The universal postal service – which ensures that letters are delivered to every address in the UK six days a week – is significant and highly-valued by the public. However, unless changes are made to the regulation of post, this service is under threat.

"Ofcom's proposals are designed to safeguard the UK's postal service, ensuring it is sustainable, affordable and high-quality, to the end of the decade and beyond."

This lead to Ofcom giving Royal Mail the power to set its own stamp prices during its long awaited review of the postal service in March.

Controversial move
Any future plans to relax the USO are likely to prove very unpopular with consumers, many of whom are still reeling from the stamp price hikes which saw first-class stamp prices increase from 46p to 60p and second class from 36p to 50p.

Consumers in rural areas would be particularly affected by a move to relax the obligation for postage price caps. As a result, they could face a cut in delivery frequency and higher postage costs when buying goods online, while people sending items to rural areas could also see a hike in charges.

Uncertain future
The move would cut Royal Mail's costs and make the company more profitable, but any change in the obligation must be approved by MPs. It is reported that Lib Dems are against any proposed changes, while Conservatives would consider them.

Either way, major changes are expected for Royal Mail in 2013 as it battles further decline in postage volumes and the uncertain future of privatisation.