Why does a first class stamp now cost £1.65 when in 2000 they were 27p?

The festive period is the busiest time of year for sending mail, with many households happily sending dozens of Christmas cards to friends and loved ones.

But rising postage costs have caught many Britons off guard this year as they head out to stock up on stamps for their Christmas mailings.

Royal Mail has increased the cost of a first-class stamp three times this year, from £1.10 to £1.65, while second-class stamps now cost 85p each, up from 75p at the start of 2024.

It means a booklet of eight first class stamps now costs £13.20, compared to £8.80 last Christmas.

Some retailers are blaming the high cost of stamps for lower than usual Christmas card sales, with John Lewis noting that sales of boxed cards are down 23 percent and sales of individual cards are down 15 percent.

First-class stamp prices have risen sharply over time, increasing 511 percent between 2000 and the present.

Second-class stamps have not risen as quickly: from 19 cents to 85 cents today, an increase of 347 percent. But the difference between the two now stands at 80 cents, up from 8 cents in 2000.

So what’s causing the runaway cost of stamps, and what’s next for stamp prices?

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The reasons for the increase in stamp prices

The recent sharp increase in stamp prices has several reasons, ranging from the decline in letters to regulations and rising personnel costs.

The main reason for the rise in the price of stamps is Royal Mail’s legal obligation to deliver a letter anywhere in the country at the same rate, six days a week, while parcels must be sent five days a week.

This requirement, the ‘universal service obligation’, together with the declining number of letters being sent, is a money pit for the Royal Mail.

The number of letters sent fell from 20 billion per year in 2004/5 to 6.7 billion in 2023/4.

But the Postal Service must maintain an expensive transportation network to deliver this declining volume of mail to every home in the country, which is why they believe that increases in stamp prices are inevitable.

Nick Landon, Chief Commercial Officer at Royal Mail, said: ‘It takes a complex and extensive network to get every letter and parcel across the country for a single price – traveling by trucks, planes, ferries and in some cases drones before it reaches its destination. final destination (delivered) on foot.

“We are proud to deliver universal service, but the financial costs are significant.”

This situation is exacerbated by an increasing number of households in Britain requiring postal delivery. Royal Mail said the number of homes it delivers to increased by four million between 2004/25 and 2023/24.

In addition, a series of strikes at Royal Mail in 2022 and 2023 severely affected deliveries and cost the company £200 million.

Yet another cost pressure for Royal Mail came in the 2024 Budget, when Chancellor Rachel Reeves unveiled increases to National Insurance, effectively adding £120 million to the wage bill.

What’s next for stamp prices?

As the data in the chart above shows, stamp prices do only one thing: rise.

The level of any increase will vary, but it will take a lot to derail the steep level of price increases seen in recent years.

An immediate pressure is the additional National Insurance Bill that Royal Mail faces.

This leaves the Royal Mail with an additional bill of £120m per year as it employs around 130,000 staff.

Martin Seidenberg, head of Royal Mail’s parent company International Distribution Services, said prices should rise in response.

An alternative – or possibly a complement – ​​to raising prices is to reduce the level of service instead.

Royal Mail wants to water down its universal service so it doesn’t have to deliver mail as often.

Postal authority Ofcom is considering this and has already hinted that Royal Mail will no longer have to deliver second-class letters on Saturdays.

Ofcom is also considering whether to allow second-class mail to be delivered on every other weekday.