Watchdog sends out a warning after Royal Mail fails to deliver

Regulator Ofgem has told the Royal Mail it must improve services after missing key performance targets, warning of possible fines if it does not improve (GETTY IMAGES)

Royal Mail came under fire from the industry regulator today for missing performance targets, including failing to deliver enough first-class letters on time.

In its first report on the 500-year-old postal operator since its £3.3bn privatisation, Ofcom said that Royal Mail had missed its target for next-day delivery of first-class mail in almost all of the UK’s postcode areas in the year to April, including some of the most densely populated parts of the country.

The regulator warned that the newly privatised company, which raised the cost of first-class deliveries by a third to 60p in April last year, faces fines if it does not improve its service.

Ofcom said it would “continue to monitor Royal Mail’s performance closely [and], should it miss the targets in future, Ofcom will consider opening a formal investigation which could result in enforcement action, including the possibility of fines”. The warning comes days after UBS, one of the banks that ran the Royal Mail flotation, told investors to sell shares in the postal service because it has a “high valuation” amid concerns about its business performance.

Royal Mail is supposed to deliver at least 91.5 per cent of first-class post by the next day in almost all of the UK’s geographic postcode areas, but only did so in 62 per cent of the required postcodes.

It even missed its target for next-day delivery of first-class mail in every single postcode area in London during the 12 months after it hiked prices.

In the worst region for the service – London East, covering the City, as well as Shoreditch and other “E” postcodes – only 89.7 per cent of mail was delivered in its promised timescale.

“Ofcom is concerned about Royal Mail’s failure to meet certain service targets, and has made clear to the company that it must take all necessary steps to meet these in future,” the regulator said.

Shares in Royal Mail have soared by more than 60 per cent since its initial public offering last month, drawing criticism that the flotation was underpriced.

But although the postal group did meet other targets, including a requirement to deliver 98.5 per cent of second-class letters within three days of collection, yesterday’s warning from Ofcom saw its shares slip back 1 per cent, or 6p, to 539p.

The regulator also said Royal Mail’s productivity was gradually improving.