The government's postal watchdog has paved the way for the price of a first class stamp to rise to 32p from next April.
Mail regulator Postcomm today said the cost of a first class stamp next year can increase from 30p to 32p, while second class stamps can rise by 1p to 22p. It capped the maximum price stamps can reach at 25p and 36p respectively.
Postcomm described the move as a "generous settlement" but the Royal Mail expressed disappointment in what it called a "tough control on stamp prices".
The postal company had wanted to push stamp costs up to 39p and 27p to help pay for modernisation and plug its £4bn pension deficit. Chairman Allan Leighton warned last month that the firm may go bust if the pension problems are not overcome.
"Today's announcement shows the regulator has moved a long way from its initial stance but no one should regard today's proposal as anything other than tough - particularly for a business with challenges on the scale Royal Mail faces," said Adam Crozier, Royal Mail chief executive.
But Nigel Stapleton, Postcomm chairman, claimed the increases were fair.
"Our proposals challenge Royal Mail to push harder for greater efficiency and to bring about a radical transformation in its letters business," he said.
From 1 January the postal market will be opened up to competition ending Royal Mail's 350 monopoly on delivering letters. New operators licensed by Postcomm will be able to collect and deliver any mail, from any customers including businesses.
Royal Mail has expressed fears that rival firms will "cherry pick" the most profitable parts of its delivery service but Postcomm has urged the company to transform its business in order to face up to the competition.
