Royal Mail has increased the price of first-class franked post to 31p per letter - a penny less than buying a first class stamp. It has also introduced a second-class franking service, costing 22p per letter. And its Special Delivery Next Day Service has gone up by 25p to £4.10.

Royal Mail says it needs the extra money to deal with competition since the postal market was opened up at the start of the year. The price rises will help pay for modernisation and the £4 billion deficit in its pension fund. Royal Mail wanted a larger price increase and Postcomm - the industry watchdog - had wanted a smaller one.

Postcomm chairman Nigel Stapleton said:

"The rises in stamp prices are substantially less than Royal Mail wanted and a little more than we planned. But without a contribution from customers, Royal Mail’s weak financial position, brought on by its large pension deficit, would have put its ability to provide the universal service at risk.

“The long period of uncertainty about how Royal Mail is to be funded and how to deal with its pension deficit has been damaging. We hope, therefore, that these proposals can serve as the catalyst to enable these issues to be addressed quickly so that Royal Mail can focus on delivering better standards of service, greater innovation and higher efficiency.�