This article was originally posted at Politics Home.
Labour’s Shadow Minister for Trade and Investment, Ian Murray MP argues that Vince Cable should be judged by his own criteria: three months on it’s confirmed: Royal Mail was sold on the cheap.
On October 11, the day of the flotation of Royal Mail on the London Stock Exchange, Business Secretary Vince Cable was asked on the Today programme directly about the immediate jump in the share price to 450p, indicating that the Government had severely undervalued it. In a dismissive response, he said: “It’s of absolutely no significance, this is forth and speculation…what really matters in terms of value, is what it looks like in three months’, six months’ time.”
Well, we have now reached that milestone – it is three months since the UK’s prized national postal provider, the Royal Mail, was privatised for £3.3bn. The rise in Royal Mail’s share price since the flotation has been huge and it closed yesterday above at 560p, over 70 per cent higher than the330p price at which the government sold the taxpayer’s stake. The price has remained well above 500p since October. It’s hardly surprising given that the initial offering was oversubscribed by some 20 times – adding to concerns that ministers priced the company far below where they could, leaving the taxpayer short changed at a time when services are being cut and when families are struggling with a cost of living crisis.
Major banks including Citibank and JPMorgan, alongside analysts Panmure Gordon, valued Royal Mail significantly above the price at which it was sold, suggesting valuations as high as £4.5 and £10bn. The Business Secretary has said that taxpayer value was ‘central’ to the government’s strategy in selling Royal Mail but given the extensive consultation with institutional investors and banks which took place, both he and the Prime Minister have serious questions to answer given that we know they considered – and rejected – increasing the offer price at the eleventh hour.
As ministers pushed ahead with an ideologically-motivated fire sale to fill the black hole left by George Osborne’s failure – he will be borrowing almost £200bn more than planned as a result of his failure on growth and living standards – it appears value for money for the taxpayer was an afterthought. The banks involved in the biggest privatisation in the UK for decades shared a fee of 1.2% of the institutional proceeds, equivalent to a massive £16.9 million. That is why I have written to the Business Secretary today, asking him to make clear what his plans are for the further discretionary bonus, worth up to £4.2 million, for the underwriters. Given the potential losses suffered by the taxpayer and that Royal Mail may have been so significantly undervalued many will question whether they are deserving of a bonus.
In November, Royal Mail reported that its profits had doubled in the first half of 2013 before privatisation took place. This demolished the Government’s case for its fire sale of Royal Mail in the first place, which rested on a claim it couldn’t succeed in public hands and needed to be privatised for investment to take place. It is now clear that it was thriving in the public sector and profits could more than cover the investment required for modernisation.
In the longer term, the concern will be for services, particularly for rural areas and our small and medium-sized businesses, who rely heavily on its six-day a week, one-price-goes-anywhere service. Ofcom’s finding at the end of last year that Royal Mail is failing to deliver the post on time to a third of Britain’s postcodes, despite charging more than ever for a first class stamp is concerning. It is crucial that we don’t see a shift in focus away from service delivery to maximising shareholder value leading to a poorer service.
On this minimum service standard – the Universal Service Obligation – the Shareholder Executive’s Chief Executive, Mark Russell, said in an interview with the Telegraph that “The key objective of protecting the universal service obligation has been kept…[I]f anything happened to that business [Royal Mail], we’d have to step in…”. The Business Secretary needs to be clear on the circumstances where the Government would step in to protect the service. We warned that the universal service was at risk with privatisation and we still believe that to be the case. That is why Labour would guarantee the Universal Service Obligation, strengthen the relationship with the now separate Post Office and ensure that other postal service operators are subject by the regulator to the same high performance and service quality standards as Royal Mail.
Vince Cable and David Cameron are in denial about their handling of the Royal Mail sell-off. By their own success criteria, it’s time they admitted they got it wrong and apologise.