British postal regulator Postcom believes the Royal Mail should be deprived of its privileged VAT-exempt status -- a move that could result in postage rates and direct mail costs soaring by up to 17.5%.

Postcom itself has no authority to implement any change in the postal operator's VAT (value added tax) position but it can "make recommendations to the appropriate government department or authority", if it believes this to be appropriate.

The VAT option is just one element of Postcom's current review of the Royal Mail's special privileges. Also under the microscope are special parking rights for RM delivery and collection vehicles, and fast-track customs clearance for overseas mail.

A Postcom consultation document, published Tuesday, examines whether these and other 'privileges' distort the UK postal market. Although VAT on postage could be reclaimed by many large users of direct mail, certain sectors such as charities and financial services (and the general public) would be unable to do so.

The regulator argues that the present situation confers an unfair advantage on the Royal Mail, whose rivals are compelled to levy VAT, placing them at a commercial disadvantage.

One competitor, Germany's national postal giant Deutsche Post, is delighted at Postcom's stance: "This is good news for us because Royal Mail's VAT-exempt status has prevented us competing directly with it."

Predictably the Royal Mail is less enthused: "The last thing that we want is for our customers to face any price rises due to the introduction of VAT," said a spokesman.

Data sourced from: BrandRepublic (UK); additional content by WARC staff