Ofcom is charged with ensuring that the universal postal service,
delivered by Royal Mail, is sustainable and affordable.
Ofcom sets quality of service targets as part of the universal
service and monitors performance against those targets, taking
enforcement action against Royal Mail when its service quality
falls below requirements. The substantial decline in letter
volumes has reduced economies of scale in letter delivery. This
has increased unit costs and weakened Royal Mail's financial
position, threatening the sustainability of the universal postal
service. Royal Mail's financial position means that there is some
tension between the need for the universal service to be
sustainable, ensuring it remains affordable and improving quality
of service.
This document sets out Ofcom's consultation proposals for the
existing retail price cap on Second Class letters to be extended
at its current level for one year, to 31 March 2028. This means
the maximum price across the basket of these products would
continue to rise no faster than inflation, as measured by CPI. We
are proposing this approach while Royal Mail implements reforms
to the delivery of the universal service (following our changes
to regulation in July 2025) and its quality of service
improvement plan, which together should have a significant impact
on Royal Mail's financial and service performance. These are
crucial to establishing a sufficiently certain evidence base to
determine the longer-term approach to pricing.
We have used the full extent of our powers to modernise Royal
Mail's regulatory obligations. This has enabled Royal Mail to
respond to the continued decline in letter volumes and ensures
that the universal service remains fit for purpose, recognising
that the way people use the service has fundamentally changed.
In January 2024, we set the current safeguard cap and began
wider work on the future of the universal service and postal
pricing. We introduced major reforms that gave Royal Mail
greater flexibility in how it delivers Second Class letters.
Those reforms came into effect on 28th July 2025.
Royal Mail started implementing the new operational model in June
2026, after it reached agreement with the Communication Workers
Union (CWU) in April 2026. Royal Mail is now in the process of
rolling out the new model across all its delivery offices and
delivering its quality of service improvement plan. Those changes
are expected to help improve Royal Mail's costs, financial
position and service performance, but the extent of their impacts
remains unclear. Royal Mail needs to make more progress on these
significant changes before we have a clear enough evidence base
on which to determine our long-term approach. Therefore, we are
proposing to continue our existing price cap on Second Class
letters for one year, until March 2028, as a short-term
solution.
Under our proposed approach we would extend the cap at its
current level for one year, following its expiration in March
2027. We recognise the importance of setting the long-term
approach given the pressures on the sustainability of the
universal service. Therefore we plan to consult on a long-term
approach to universal service and access pricing in Q1 2027/28
and issue a decision in Q3 2027/28. Our work would build on our
2025 Call for Input (CFI) on pricing and affordability and
stakeholder input we received in response and subsequently.
It remains important that people have affordable access to the
postal service. While we have consistently found that most people
do not face affordability challenges to sending post; in 2023/24
the average household spent around £2.60 per month on postal
services (this is equivalent to £0.60 per week), we also
acknowledge that a small proportion of people may be more likely
to face affordability issues, with those on lower incomes more
likely to be vulnerable to increased postal prices. Therefore, we
remain of the view that having more targeted approaches to
affordability in place would have a significant impact on our
approach to regulation and welcome Royal Mail's continued
consideration of a targeted discount scheme.
Responding to our consultation
Please submit responses using the response form no later
than 5pm on 27 November 2026.
