In its annual report, Postcomm chairman Nigel Stapleton said Royal Mail should make more effort to offer customers better prices and not look to Postcomm for a relaxation of price regulation.

Postcomm believed that by following three key steps, Royal Mail could see improvements.

According to Jayant Chavda, interim head of communications at PostComm, these could include "contracting out and market testing, implementing an investment programme capable of delivering the levels of automation and efficiency of its peers and competitors, and finally increasing its labour efficiency with a more flexible workforce".

In reaction to this, a Royal Mail spokesman said: "Following last year's landmark agreement on modernisation and pensions, Royal Mail is pressing ahead with heavy investment in our people and in technology that will deliver efficiencies and provide the platform for new and more flexible products for our customers – and ensure we compete successfully in a market where volumes are falling and competitive pressures are increasing."

However, a bid to impose more automation and changes in working practices could lead to further spats with the Communication Workers Union (CWU) which last year resulted in a series of strikes across the summer, costing the direct mail industry an estimated £8m.

The CWU declined to comment on the report; its members are currently balloting on strike action in Oxford because of changes to working hours.