Deloitte presents winners and losers at a glance The Budget 2013

It’s possible you missed the announcement by Royal Mail a few weeks ago, but a First Class stamp is set to rocket to 60p from 30th April 2012, and the alternative won’t be much cheaper, with a Second Class stamp rising to 50p. This is primarily as a result of the lifting of select government-imposed price controls.

Just last year we were all in a little bit of shock when the cost of a first class stamp rose 5p from 41p to 46p. Prior to this year’s announcement, that was the highest rise in the cost of a stamp in one go.

In a statement after a meeting with the Common’s Business Committee, Royal Mail said “We have some of the lowest stamp prices in Europe and amongst the highest service standards.”

As you read on, I think you’ll see that is clearly not true.

Royal Mail: Worse, Not Better

Now, relative to what the cost of a stamp and service quality used to be, this latest rise is a shocking inflation in price for a service that has traditionally only got worse, despite the volume of mail declining year on year since the inception of the internet.

As a child of the 80′s I remember the first delivery turning up around 7am, and then a second delivery about 2pm. Anything posted first class would arrive the next day almost without fail, and anything second class would arrive if not the next day, definitely within 3 days.

Now we are lucky if something posted first class turns up within 3 days, despite mail volume dropping 4% last year alone. Out of the four items I have posted first class in the last 3 months, one arrived the next day, two arrived in 2 days and one never turned up at all. Not a great advert for the beleaguered Royal Mail.

Price Always Up

The cost of postage has only ever gone one way in the UK, and that is up. Despite Royal Mail now setting prices up to 37% above inflation, I can’t foresee the service getting any better. Royal Mail is a large monolith that is struggling to adapt to the times, and also has a huge pension deficit to try and make up.

As we can see, the April 2012 increase will be the largest ever jump in the price of a stamp in recent history.

The Royal Mail’s chief executive, Moya Greene, said the primarily state-owned business had no choice but to bump up first-class prices by 30% and second-class by 39%, having seen its mail collection and delivery unit lose nearly £1bn in four years. Mail volumes have slumped by a quarter since 2006 to “just” 59m letters and parcels a day.

59 million letters a day. That’s an income even if every single piece was posted second class standard letter, of £2.9 billion a day. I struggle to see how Royal Mail can be in such dire straights with such income, except for mis-management and waste.

Comparison By Country

Is the UK situation any worse or better than postal users in other countries?

While some cannot be simple “like for like” comparisons, I’ve pulled together the ‘average cost’ of standard small letters in other countries and converted the cost of the local currency into UK pounds. The majority of these rates suffice for small letters in the UK, first class carriage.

From a sample of 8 different countries selected at random, not a single one is the same price or more expensive than ours. I’d like to think this sample is fairly representative of the world, as there are communist, capitalist, european, far eastern, Americas and Australia included.

Is the situation we face in a couple of weeks any different to when the first stamp was introduced, though?

The First Stamp

The Penny Black – which, unsurprisingly, cost 1 penny – was the first postage stamp introduced in the UK way back in 1840. Prior to this, postage costs were actually paid by the recipient of the mail at the time of delivery. Seems cheap, doesn’t it? Even adjusting that (pre-decimalised) penny for inflation shows that the first postage stamp in the UK actually cost the equivalent of about 18p per stamp in today’s money.

So perhaps it isn’t all that bad after all, given all other points of our spending power, wages, standard of living and so on. Royal Mail will ultimately have to adapt or cease to exist, however. And the latter choice would be bad for the UK economy as that alternative would put an additional 176,000 people out of work.

Will the rise in stamp prices change your use of Royal Mail? Will you use email and other communication methods more?

I was reading an article on The Money Principle today where a guest-poster from a while back, announced he finally had a job. So firstly well done Ewan! I know how difficult the employment market has become, and securing a job is no mean feat in the current economic climate.

There are 3 things in that article that really struck me but before I get on to them, I just want to re-iterate that this post is not about Ewan but the wider points raised by his post. I really do mean “well done mate” when I say it.

1. 70 people out of 100 rejected at the credit check stage

When Ewan applied for the job he had to submit to a credit check. This is fairly standard these days for a considerable number of roles, but particularly pertinent for his entry into a financial institution. What’s frightening however is that he was among 100 people to do so. The next time he met up with his group, only 30 remained.

Now I appreciate a sampling of 100 people in one geographical area for one employment window for one employer is not representative and isn’t necessarily statistically valid for extrapolating countrywide data. But it is still incredibly telling.

People who are out of work are applying for anything they can find. They would have known the credit check would have happened, and yet applied anyway. This either suggests they do not even know they have poor credit, or did know but tried anyway. How can 70% of people applying for a job, have a credit rating too poor to work in a financial institution?

Your credit rating is important, guys. Look after it. On a related note though your Credit Score is irrelevant. Don’t fall for it.

Ewan was on Job Seekers’ for 4 years

To my non-UK readers, Job Seekers Allowance is a social benefit paid by the government for people out of work. It pays £71 a week (£284/month or roughly $450 USD). It is better than nothing, and coupled with other available benefits such as Housing Benefit, Council Tax Benefit and others as permitted, can allow you to function to a degree when outside of employment.

Now bear in mind I know nothing about Ewan. I have no idea how old he is, what his skills are, disabilities if any an so on. I also don’t know if he’s fresh out of university, or had a job previously. But assuming he’s a run-of-the-mill guy living in England somewhere, that’s frightening whatever way you shake it.

A couple of days ago I was saying why everyone needs an Emergency Fund. In it, I was saying you should have around 6 months of living expenses. I had deliberately ignored the potential for benefit claiming within that fund, as sometimes they can take forever to sort out. Sometimes you are disqualified for a period. I’d taken the view that when an emergency strikes the chances of anything else falling into place when you need it to, probably won’t!

But even with benefits, could your emergency fund eek out to 4 years? I’m curious, and want to see. I will use values from my area, and use my home as an example.

If I am made unemployed tomorrow, I will claim:

• Job Seeker’s Allowance (£71 a week)
• Housing Benefit (£77 a week)

The length of the recruitment process

Ewan, don’t take offence at this! If you have gone over and read the post, you might be surprised at the steps Ewan had to take to get the job. Assessment centres, online aptitude tests, one-to-one interviews, role play, and both inside and outside training before and after. For a job paying £12,750 ($20,300 USD) annually.

That’s incredible (in my mind). I’ve had the same job for the last 10 years, so things have surely changed in those times. I had to go through all those and more but critically, for significantly more money. When I applied for a sales advisor position at Tesco 11 years ago for only slightly less than Ewan is taking home today, I had a 15 minute interview with the store HR manager. That was it.

Are employers in part the problem for the economic climate of today?

Well done Ewan for breaking the benefit cycle! Despite the negativity in parts of this post I am truly happy for you! I just couldn’t ignore the wider questions your post raised.