Royal Mail Misses First-Class Target Again as Ofcom Readies Probe

The figures, confirmed by Royal Mail on 30 May, represent the first full-year performance snapshot since Czech billionaire Daniel Kretinsky's EP Group completed its £3.6bn takeover last spring, as first reported by Business Matters. Far from stabilising under new ownership, on-time first-class delivery has slipped from 76.9% the previous year to 75.7%, while second-class performance fell to 90.2% against a target of 98.5%.

It is a decade since Royal Mail last met its first-class target and six years since it cleared the bar on second-class, according to the company's own regulatory filings.

The numbers: how far Royal Mail fell short

The 93% first-class next-day target has been a regulatory fixture for years, yet Royal Mail has not come close in recent memory. A gap of more than 17 percentage points between target and outcome is difficult to characterise as marginal underperformance; it is a structural shortfall.

Second-class post fared little better. Only 90.2% of letters arrived within three working days, missing the 98.5% benchmark by over eight percentage points. Both metrics deteriorated year on year.

Letter volumes have collapsed from roughly 20 billion items in 2004-05 to around 6.6 billion last year, according to House of Commons Library research. A first-class stamp now costs £1.70. The economics of the universal service obligation are under severe strain, yet the service itself continues to fall short of the standards attached to it.

What the Ofcom probe means for fines and regulation

Ofcom described itself as "very concerned" by the latest figures, according to Business Matters. The regulator is understood to be preparing to open a formal investigation as soon as this week, a step that would almost certainly lead to a further financial penalty.

The precedent is recent. In October 2025, Ofcom fined Royal Mail £21m for missing its 2024-25 delivery targets, the regulator's third-largest penalty ever. A repeat investigation covering the 2025-26 year would follow the same enforcement framework, and the continued deterioration in performance could make it harder for Royal Mail to argue for leniency.

At the same time, Ofcom has recalibrated what it expects going forward. From April 2026, the regulator lowered its targets to 90% next-day delivery for first-class and 95% three-day delivery for second-class. Ofcom argued the previous benchmarks were "more stretching" than those in comparable European countries and would "carry higher costs which would need to be recovered through higher prices," according to its published review.

The softer targets amount to a regulatory concession. Whether they prove achievable is another matter. Royal Mail's chief operating officer, Jamie Stephenson, said the business is on course to meet the new benchmarks by March 2027.

"We're putting significant investment into improving reliability and reaching these new delivery targets, but delivering lasting change across a network of this scale takes time," Stephenson said, according to Business Matters.

The SME impact: cash flow, compliance and contingency

Britain's 5.5 million small businesses remain disproportionately reliant on physical mail. Invoices, cheques, HMRC correspondence, signed agreements and statutory notices still travel by post for firms that have not, or cannot, fully digitise their operations.

Chronic delivery failures translate into tangible operational problems. Late invoices delay cash collection. HMRC letters that arrive after a response deadline can trigger penalties. Contracts requiring wet signatures miss completion dates. For sole traders and micro-businesses operating on thin margins, even a few days' delay in the postal system can disrupt working capital.

The removal of Saturday second-class deliveries from April 2026, agreed between Royal Mail and Ofcom as part of the broader restructuring, narrows the delivery window further. SMEs posting second-class mail on a Thursday may now wait until the following week for it to arrive.

Tom MacInnes, policy director at Citizens Advice, offered a blunt assessment. Poor performance at Royal Mail, he said, was "business as usual," according to Business Matters.

"What's worse, Royal Mail claims people will have to wait another year until it can meet its new, lower delivery targets," MacInnes added.

In February, postal workers told the BBC that letters had been sitting undelivered in depots for weeks because staff had been instructed to prioritise parcels, which carry higher margins. Daniel Kretinsky was called before MPs on the Business and Trade Committee in March, where he said he was "deeply sorry for any letter that arrives late" but denied that parcels were being prioritised over letters, according to Business Matters' reporting.

Practical implications

SMEs that depend on Royal Mail for time-sensitive correspondence face a narrowing set of options. Switching to tracked or guaranteed-delivery services raises costs. Moving to digital invoicing and e-signatures requires investment in software and, in some cases, changes to contractual terms. Neither is trivial for a business with limited resources.

The structural message is clear: the postal service that SMEs have relied upon for decades is now operating at a materially lower standard, and the regulator has accepted that reality by lowering its own expectations.

Can £500m and lower targets fix a decade of decline?

Royal Mail's £500m five-year investment plan is the centrepiece of its turnaround strategy. The programme includes offering part-time postal workers longer hours and restructuring delivery rounds, according to the company's announcements. The shift away from Saturday second-class deliveries is designed to concentrate resources on fewer, more reliable delivery days.

The investment sits alongside a broader strategic pivot towards parcels. With letter volumes in long-term decline and parcel margins significantly higher, EP Group's commercial logic points towards a business that treats letters as a regulated obligation rather than a growth engine.

That calculation may be rational from a corporate perspective, but it creates a tension at the heart of the universal service obligation. The obligation exists precisely because certain users, including small businesses, cannot substitute away from physical mail. If the economics of letters deteriorate further, the cost of maintaining even a reduced service will rise, and that cost will ultimately be borne by stamp prices, taxpayer subsidy, or further service cuts.

Kretinsky's ownership adds a layer of political sensitivity. Royal Mail entered foreign ownership for the first time in its five-century history when EP Group's acquisition completed. Parliamentary scrutiny is likely to intensify if performance continues to slide, particularly given the commitments Kretinsky made to MPs about maintaining service standards.

The lowered targets give Royal Mail a more forgiving yardstick. Hitting 90% first-class next-day delivery would still represent a significant improvement from 75.7%, requiring a 14.3 percentage point swing in a single year. Whether the investment plan can deliver that improvement, after a decade of missed targets, remains an open question.

For SME owners planning around postal reliability, the prudent assumption is that the service will remain structurally weaker than it was five years ago. Building in longer lead times for posted correspondence, accelerating digital migration where feasible, and maintaining records of posting dates for compliance purposes are no longer precautionary measures. They are operational necessities.