The special exemption from VAT for Royal Mail stamps may be scrapped next year when the postal market is opened to private companies, possibly resulting in a 5p increase for fist class stamps.

Documents recently released under the Freedom of Information Act reveal that regulatory body Postcomm are currently in negotiations with the Treasury and the Department for Trade and Industry (DTI).

A reduced rate of 5% on Royal Mail stamps has been proposed by Postcomm, but it is thought that the EU will insist that the full 17.5% will have to be added by the Royal Mail and all private companies entering the market in order to keep competition fair.

Sources close to Postcomm feel that the Treasury may well find the millions of pounds worth of additional revenue too tempting to turn down. They are also likely to be unwilling to enter in to a legal battle with private companies who would naturally oppose any decision which affords a competitive advantage to Royal Mail.