The Royal Mail was considering last night whether to mount a legal challenge to plans for it to deliver letters for rival firms for 11.5p.

Chairman Allan Leighton said he was "shocked" at a proposal by the industry's regulator Postcomm to allow Royal Mail to make a 6 per cent operating profit by 2006 by giving competitors access to its local delivery network.

The proposed price of between 11.5p for letters weighing less than 60 grams, which covers most mail, to a maximum of about £4 for a heavy package, will apply to private operator UK Mail but the figure will also be used by any other company entering the postal market.

Mr Leighton revealed new financial figures due to be released would show the Royal Mail had "significantly" cut its £1 million a day losses and started to turn the company around.

But he warned: "Just as we have turned a corner, along comes the regulator and throws what could be an almighty spanner in the works."

Mr Leighton said he was not convinced the Royal Mail could continue to provide a one-price-goes-anywhere postal service if rival firms could handle mail for as little as 11.5p.

He warned of a two-tier postal service, with stamp prices dependent on where people lived, if the so-called access arrangement was wrong.

Tuesday May 20 2003