Royal Mail's privatisation left taxpayers short changed by £750 million as ministers were "too cautious" in their pricing of the business at just 330p-a-share, a hard-hitting official report has found.
The National Audit Office, the government's public spending watchdog, said that the government's desire for a successful Royal Mail sale, by ensuring investors were not put off by a prohibitively high price, "resulted in the shares being priced at a level substantially below that at which they started trading".
Royal Mail's shares soared by over a third on their stock market debut last October as demand among investors exceeded the supply of shares many times over. Vince Cable dismissed the early rise as "froth and speculation", however Royal Mail's share price continued to rise to 619p in January, with the shares closing off at 563p yesterday, still 70% higher than the opening price.
The NAO found that 16 "priority investors", selected by the Lib Dem business secretary for their long-term investor potential, had cashed in on their shares allocation within weeks of the stock market float, making a substantial profit. By the end of January, just 12% of Royal Mail's shares were held by "priority investors".
Many of the shares were then seized by hedge funds, which Cable previously attacked as short-term investors who were "spivs and gamblers".
NAO head Amyas Morse, said: "The department was very keen to achieve its objective of selling Royal Mail, and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer."
Cable defended the handling of the sale, saying: "Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale. The report concludes there was a real risk of a failed sale attached to pushing the price too high. And a failed sale would have been the worst outcome for taxpayers and jeopardised the operation of Royal Mail."
Shadow business secretary Chuka Umunna said the NAO's findings were a "damning verdict on the Tory-led government's botched Royal Mail fire sale, leaving the taxpayer disgracefully short changed by hundreds of millions of pounds".
Unite national officer Brian Scott said: "This report is startling proof that the government sold off the country's family silver on the cheap."
Business minister Michael Fallon insisted that the Royal Mail privatisation had been a "success", adding: "I don’t think we did get it wrong. We got the issue away; this was one of the biggest privatisations for 20 years; a loss-making public corporation has now been transformed into one of the top 100 British companies; 10% of the shares are in the hands of the staff, and three-quarters of a million people invested in it as well."
"So this was a success, and the Audit Office report actually recognises that we achieved our objectives."
Others defended the government's handling of the Royal Mail sale. Dr Madsen Pirie, president of the free market think-tank the Adam Smith Institute, said: "It was the first major privatization in two decades, and the aim was not to raise the greatest possible sum for the government, but to turn a state-run corporation into a successful and flourishing private business.
"The pricing was cautious, as it was in the earlier privatizations, because government wanted a successful launch into the private sector more than it wanted the highest possible price.
Simon Walker, director general of the Institute of Directors business group, said: “The privatisation of Royal Mail should be seen as good for the business, good for taxpayers, and good for hundreds of thousands of new shareholders, particularly the many members of staff who now own part of the company.
“What the Government should really do now is put its residual 30% of Royal Mail on the market.”
Increasing the price of stamps
Selling our postcode data into private hands
Giving Royal Mail's £1.5m-a-year boss a pay rise
Royal Mail could be 215% bigger than its starting price