The UK’s Universal Service Obligation (USO) is undergoing its most significant reform since 1968, with second-class letter deliveries set to move to alternate weekdays.

What’s driving the reform?

The way people communicate has changed drastically. Technology now allows individuals and organisations to share information instantly across the UK and globally. Unsurprisingly, letter volumes have declined sharply. Over the past 20 years, Royal Mail’s letter traffic has fallen by around two-thirds, fundamentally altering the economics of postal delivery.

Yet the existing USO, which required delivery of both first and second class letters to every address in the UK, six days a week, remained unchanged throughout this period.

Ofcom’s changes represent a critical step toward realigning the USO with modern communication needs and the financial realities of the postal network. At the same time, the updated framework preserves the core benefits of a universal postal service: a single price for sending a letter anywhere in the UK, ensuring that all communities retain affordable access to postal services.

This will continue to deliver the social benefits of keeping the people of the United Kingdom connected and support a balanced regional economic growth including regions which might otherwise not have had access to an affordable letter and parcel service.

What’s Changing?

A key driver of the costs of the USO is the fixed cost of the ‘final’ delivery network. This reflects the frequency of delivery for non-priority mail, which represents the vast majority of letter mail.  As volumes fall, maintaining a daily frequency of delivery increases unit costs.  The change in this frequency from daily to ‘alternate’ days is at the heart of the proposed reform.  From July 2025, delivery of 2nd class items will only take place every other weekday.

Alongside the delivery frequency changes, Ofcom has adjusted Quality of Service targets:

• First-class delivery: Next-day target reduced from 93% to 90%
• Second-class delivery: Three-day target reduced from 98.5% to 95%

While still exceeding international benchmarks, the reforms reflect a shift in emphasis from speed to reliability. New ‘tail of mail’ metrics have been introduced to ensure that:

• 99% of first-class letters are delivered within 3 days (D+3)
• 99% of second-class letters are delivered within 5 days (D+5)

First-class letters will continue to be delivered Monday to Saturday, and Ofcom has also mandated Royal Mail retain one day wholesale service (D+2) in addition to the two-day service (D+3) that Royal Mail proposed to mirror the change in the USO second-class offer. These reforms are projected to deliver annual net savings of £250–450 million.

A Sustainable Future?

While the reforms mark an important shift, Ofcom acknowledges that the reforms alone will not secure a financially sustainable USO; assumed to require a profit margin above 5%.

Ofcom highlights Royal Mail’s need to continue driving operational efficiency and growing its parcel business. While these are important levers, the trends driving reducing demand for letter are ongoing. Maintaining a USO that continues to deliver its wider economic and social benefits, such as universal access, social inclusion, public trust, civic engagement, and the delivery of essential goods and services, will continue to be a key policy issue for regulators, governments and providers of universal services.

Going forward, a deeper understanding of the societal benefits of the USO and the stakeholders affected will be essential. This will inform the search for sustainable models, including the question of whether and when funding support from outside the postal sector may be justified to sustain a universal service in the future.

Frontier Economics supported Royal Mail in developing the evidence base underpinning these reforms. You can read more about our involvement here.