Royal Mail: Selling off the family silver for a song


Vince Cable and Michael Fallon might have been looking to make a quick buck to dig George Osborne out of a hole with their Royal Mail fire sale, but they've been left with mounting questions to answer.

This morning they appear in front of the Commons Business, Innovation and Skills Committee to explain why they sold shares in Royal Mail at 330p which have now been trading at above 500p for over 5 weeks, amid concerns the taxpayer has been royally short changed to the tune of hundreds of millions of pounds.

Labour opposed the Government's privatisation of Royal Mail from day one and made the case for keeping this cherished national institution, founded almost five centuries ago, in public ownership.

However, despite opposition from a broad coalition – including Tory backbenchers, the Bow Group, and Royal Mail employees – ministers were hell bent on flogging off Royal Mail in order to fill the hole left by George Osborne's failure to pay down the debt. Of course, the sale occurred at a time when this Government has borrowed more in three years than Labour did in thirteen.

Cable and Fallon claimed the sell off was necessary to secure investment in Royal Mail. Yet, they ignored the fact that the £400m of profits which Royal Mail posted last year - and future profits - could be reinvested into the business. So, having taken on the pension deficit of Royal Mail earlier this year, they have now nationalised the debts of Royal Mail and privatised the profits. No wonder the Bow Group says the privatisation is "poisonous" and will cost the Tories votes at the next election.

Having determined to proceed in the face of this overwhelming opposition, the least the Government could do was to secure good value for the taxpayer. With that in mind, we and others raised legitimate questions and raised concerns about the value attributed by Ministers to Royal Mail which we felt risked the taxpayer being short changed. For example, details of Royal Mail's property portfolio in the Initial Public Offering document were scant and suggested its value had not been fully taken into account.

Sadly these concerns were dismissed as 'froth' by Vince Cable. Given that Royal Mail's share price has risen by 60 per cent since the day of sale and remains high, he has some serious explaining to do. He made this claim knowing that Royal Mail shares had been hugely oversubscribed by institutional investors – the professionals – twenty times over (they had to put in bids well before the sale itself). In comparison, shares were seven times oversubscribed by individual investors. Little surprise then that last week major investment banks, including those advising on the deal, giving evidence to the Committee failed to endorse Cable's 'frothy' views.

And, if the concerns that Royal Mail was being sold at an undervalue were 'froth', why then did Ministers consider – and reject – the option of a higher price on the eve of sale? The fact that ministers are now considering whether the banks advising the deal should receive the discretionary payment as part of their package suggests they know something has gone badly wrong.

The truth is that while the government implied this would be a 'tell sid'-style offering, in the end the lion's share went to institutional investors, while many smaller investors ended up losing out. Vince Cable claimed that Royal Mail shares would end up in the hands of institutional investors who could adopt a stable, long-termist approach, despite providing no answers on how he could guarantee this would be the case - after the first hour of trading 100 million trades of Royal Mail shares were made and Royal Mail's largest individual private shareholder is now hedge fund, TCI.

All the evidence so far points to taxpayers having lost out to the tune of hundreds of millions of pounds between 11 and 15 October 2013 when the sale took place. At a time when the public finances are tight and families are suffering as a result, taxpayers deserve some answers today to all these very serious questions.