The regulator said the rises "are substantially less than Royal Mail wanted" but have been allowed in response to Royal Mail's concerns over its pension deficit, modernisation budget and the risk of either a fall in mail volumes or an increase in the pension deficit.
The regulator has proposed a complicated price control on Royal Mail for 2006-2010, altering its initial proposal that First Class stamp prices rise only as far as 34p by 2010.
Its new proposal raises the cap to 36p by 2010, closer to Royal Mail's request of 39p, and also allows Royal Mail to raise the price next year from the current 30p to 32p.
Nigel Stapleton, Postcomm chairman, 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."
In a more detailed explanation of the price cap, Postcomm explained: "There are two price caps. Products that are mainly used by the general public -- who at present have no alternative to using Royal Mail -- will be regulated in a 'captive tariff basket'. Products used by businesses -- who are more likely to have a choice of operator -- will be regulated in a 'non-captive tariff basket'.
"The price cap for the captive tariff basket will be a 6.2% increase in year one followed by prices pegged to Retail Price Index minus 1.5% per year until 2010. For the non-captive tariff basket the cap is 6.2% in year one and RPI minus 3.5% per year until 2010.
"Within each basket, Royal Mail will be able to increase prices of individual items by up to 3% above the average price control, providing it reduces other items by the same amount. It can not rebalance prices between baskets. It is this 3% rule that will allow Royal Mail to raise public stamp prices."
Postcomm also proposed reducing Royal Mail's 16 service targets to 12, based on retaining eight of the existing targets and adding four new ones. These relate to: correct deliveries; mail collections completed each day; mail deliveries completed each day; and deliveries to European destinations within three days.
In response to concerns from competing mail operators about Royal Mail reducing the margin between its retail price and the price it charges them for access, Postcomm has proposed retaining the current differentials between access products and their equivalent retail tariffs.
Royal Mail, other operators and customers can apply for these differentials to be amended after two years of the price control.
Postcomm said Royal Mail has indicated that it accepts the proposed price caps.
However, the response from Adam Crozier, Royal Mail chief executive, was that the organisation needs time to assess the proposals.
He said: "Today's announcement from Postcomm shows the regulator has moved a long way from its initial stance -- but no one should regard today's proposals as anything other than tough -- particularly for a business with challenges on the scale that Royal Mail faces. We need to see all the detail and assess the full impact on our business.
"Now that we know broadly what the regulator is proposing we'll be talking to our shareholder [the government] about the future financing of the company and of the investments we need to make, and to our pension trustees about our ability to meet the scheme's liabilities."
Postal customer representative Postwatch also said it would need time to assess the proposals.
Millie Banerjee, the new chair of Postwatch, said: "On first reading it is difficult to conclude it represents a good deal for customers... By any measure this is a generous settlement for Royal Mail."
There will now be a three-month long consultation on the proposals.
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