The proposals will threaten quality of service, Royal Mail says

Postcomm wants a price cap guaranteeing that first class stamps will have risen to no more than 34p by 2010.

It also proposes tougher penalties for missing delivery targets which could cost Royal Mail �280m in refunds.

But Royal Mail chairman Allan Leighton said: "These proposals will literally starve Royal Mail of vital investment."

Four new performance standards would be introduced under Postcomm's plans, including a target of delivering 99% of mail by the next working day.

Consumer group Postwatch welcomed the plans, saying they represent a "better deal for customers".

'Unacceptable'

These proposals are a kick in the teeth for our people Allan Leighton, Royal Mail chairman How Royal Mail is facing up to greater competition

But Royal Mail said that, unless the proposals were "substantially" changed, it would make a complaint to the Competition Commission.

"These proposals are a kick in the teeth for our people. They destroy the hard-won gains on quality of service and push Royal Mail back into a spiral of decline," said its chairman Allan Leighton.

"We cannot accept them. It's as simple as that."

He also warned that, without the flexibility to increase prices more, it could be difficult to maintain the same price for deliveries to remote areas.

Royal Mail stamp prices currently stand at 30p for first class and 21p for second class.

The proposed pricing caps, which would also see second class stamps limited to a price of 23p by 2010, assume inflation does not exceed 2.5%.

Consultation

Postcomm's proposals will go out to consultation for three months from Wednesday.

This package of proposals for the first time recognises that customers are important Peter Carr, Postwatch chairman

Postcomm chairman Nigel Stapleton said the proposals "build on the momentum already generated by competition" in a "dynamic and growing" market.

He added: "Our proposals seek to strike an appropriate balance between Royal Mail's regulatory freedom in a newly liberalised market and the interests of mail customers and rival postal operators.

"This is good news for domestic customers, who would benefit from a freeze on Royal Mail's average prices and stronger incentives on the company to improve its quality of service."

Competitive threat

The postal market will be opened up to greater competition next year and Mr Leighton said he feared rivals would cherry-pick mail that was easy to deliver, threatening the future of its universal service.

But Peter Carr, chairman of consumer group Postwatch, strongly urged Postcomm's commissioners to resist outside pressure to weaken the proposals.

"This package of proposals for the first time recognises that customers are important," Mr Carr told the BBC.

He said previous arrangements had allowed Royal Mail to increase prices rather than focus on improving service and efficiency.

"It's important that the regulator acts to avoid the monopoly using its power adversely against customers."

This debate is now closed. Read a selection of your comments below.

This is not about price, it is about service John Drennan, Amersham, UK

I regularly have mail thrown over the garden wall, left out in the rain, or one famous occasion put in the dustbin with a note informing me of that fact. It was actually refuse collection day. You can guess the rest. Regular complaints to the Post Office produce nothing but the occasional pack of 6 second class stamps by way of apology, and an assurance the 'relevant delivery personnel have been reminded of correct procedures'. This is not about price, it is about service. Only when faced with serious competition, will the service improve to a level where the fee for carrying a letter can be properly appraised.
John Drennan, Amersham, UK

Why are the government continuing to liberalise markets that don't need it? Competition has failed in directory enquires, with fewer people using them and those that do paying more for an inferior service. All liberalisation will do is take the profitable mail away from Royal Mail and force them to increase the price on mail that is currently less profitable (for example, rural deliveries).
Ian Thomas, Portsmouth, England

Royal Mail needs to have the freedom that its competitors enjoy. No other delivery company will have such restrictions. Either Postwatch and the government want them to compete in the business market (which includes paying bonuses to all employees for good performance) or they want to send Royal Mail back to the bad old days of union control and constant strikes.
Jan C, Abbots Langley, Herts

I agree with Postcomm's proposals. The first class postal service in this country is disgusting. I can't believe that postal workers are being rewarded for this service. I posted a first class letter on Monday well before the time stated for collection on a Bank Holiday but it was not delivered until today (Wed). The Post Office made a huge profit but the service the customer gets is substandard. Carol
Carol, Wales

We have suffered badly due to under-investment over the years Graham, Fife, Scotland

Once again, Postwatch and Postcomm are revealing their contempt for Royal Mail and its workers by handicapping us in relation to price caps. We have suffered badly due to under-investment over the years. We need to have the funds available to reinvest and compete effectively once the market becomes deregulated next year. Capping the prices handcuffs us and will undo the hard work that has been achieved by postmen like me over the past few years.
Graham, Fife, Scotland

Why don't they stop paying fat bonuses to all the bosses (Adam Crozier) and use that money for vital investment instead?
Steve, UK

Why are they doing this to Royal Mail? (Compare the prices to other mail companies around the world). Are they going to regulate the other companies on how much they charge?
Marcus Wilkins, St Austell, Cornwall

If people want a next day delivery they should pay for it at the right price. The mail service is getting better so why not charge more for the next day delivery and keep 2nd class cheap if you not in a hurry.
Kev, Leighton Buzzard, England

As a major part of our business delivery of products, we use Royal Mail and with the increase in prices the service still isn't getting better. We have seen Royal Mail are making substantial profit, and this money should be used to improve the service. Price increases should be frozen until the service is better.
David, N. Ireland