Direct Mail firm GI Solutions said the current proposal risks big price hikes for businesses that use PAF, such as for bulk mailing and address searches for online customer form filling.

Royal Mail’s business customers currently pay for a PAF License.

Under the proposed new system of charging, which is currently under consultation, businesses will instead be charged 1-8 pence every time an address is checked against PAF. The potential extra costs are huge, especially for bulk mailers, warned GI Solution's deputy managing director Patrick Headley.

"We currently pay £16,000 a year for our licence, but if a company is charged 1p a record, 10m mailings would cost £100,000. This is a huge increase. This is not the way to go about promoting mail and encouraging people to use the service.

"I was speaking to a big retail customer recently and he said it will just encourage them to swap mail for email. The industry is up in arms and this will result in pandemonium. If this goes ahead it will be devastating to the industry and I can see companies going out of business. I hope Royal Mail sees sense."

He added that often a letter was checked against PAF up to five times for it to qualify for some of Royal Mail's discount services. For a mailing house that mailed 2.5m letters a month it could see monthly costs rise from between £24,000 to £200,000. These would be passed on to the customer.

The DMA supports the theory that PAF licensing needs to be simplified to increase the number of business users, but believes that Royal Mail should implement the changes without increasing costs for its business customers. The organisation is due to make a submission to Royal Mail's consultation to highlight its concerns.

British Association for Print and Communication chairman Sidney Bobb said: "They are having to sell Royal Mail as a profitable organisation, but exactly the same happened with the utilities, which many think damaged the services. There has been a tremendous growth in providers of product distribution, so TNT will take advantage of this if they can."

BPIF chief executive Kathy Woodward said: "Anything that makes mailing less attractive is harmful to the industry. But coming up to privatisation I would expect them to demonstrate a growth scenario rather than do anything that negatively impacts their distribution volumes."

However a Royal Mail spokesman said: "The proposals aim to incentivise take up, encourage greater use of PAF and enable it to better meet the current and future needs of users and solutions developers in today’s marketplace.

"Royal Mail has recognised that a simpler approach to licensing PAF is required to meet current and future needs. Ofcom’s recent consultation on the management of PAF, along with feedback from users, support the need for greater licence simplification."