POLITICS

Royal Mail Float May Not Have Got Best Taxpayer Value - Vince Cable

29/04/2014 14:21 BST | Updated 29/04/2014 14:59 BST
Anthony Devlin/PA Wire
Business Secretary Vince Cable arrives at Downing Street for the Cabinet meeting ahead of today's Budget, London.

Vince Cable has admitted that Royal Mail's controversial stock market flotation may not have got the "maximum value" for the taxpayer, as MPs accused him of letting it be sold at a "ridiculous" price.

Members of the Commons business select committee criticised the Lib Dem business secretary's handling of the Royal Mail sale, which left taxpayers potentially £750m out of pocket in its first day of trading due to ministers' cautious pricing of the business at 330p-a-share.

Cable refused to apologise for government's handling of the sale and insisted that it was a "successful transaction" made at a price based on what was known at the time.

Adrian Bailey, Labour chair of the committee, said that ministers were so keen to successfully sell Royal Mail that "value for money was a secondary issue" and it was sold at a "quite frankly ridiculous" price.

"Most right-thinking people know it was undersold," he told Cable. "You were driven by a political desire to sell and clearly undervalued the company."

"The whole approach of the ministers I find quite bizarre in terms of selling something. Whilst obviously when you are selling something you need to point out potential problems, there doesn't seem to be any emphasis on the positive cash position, the transformation in the company that had taken place and the value of the assets that were implicit in it.

"I would reasonably expect anybody who was selling something to at least give a balanced approach. The approach of the department seems to have dwelt on the negative, which if you are selling something - and particularly when that something is a public asset that the public were entitled to get money for - seems, quite frankly, utterly ridiculous."

Royal Mail was valued for its initial stock market flotation last October at 330p-a-share, however the business' share price continued to rise to 619p in January and increased by 72% over the first five months of trading.

Tory committee member Brian Binley lamented ministers' failure to "squeeze a little more money out for the taxpayer" and described the process as "slightly less than squeaky clean".

Labour member Willie Bain said the public would be "flabbergasted" to lose out on "millions of pounds" as a result of the low pricing, while fellow Labour member Katy Clark said ministers "were not going to let anything stand in the way of selling off this asset as soon as possible".

Cable robustly defended the government's handling of the sale, telling MPs that Royal Mail "is still a fragile company with a volatile share price".

He argued that repricing the shares could have caused a "meltdown" in the share price, as ministers aimed to ensure a successful sale.

Sitting alongside him, business minister Michael Fallon insisted that there was "no evidence that people would have paid more than 330p" a share.

Cable insisted that the Royal Mail sale had still been a success, but questioned if a stock market float would be the best process for future sales of state assets.

"Hindsight is a wonderful thing, but on the basis of the facts we had, the information we had, the knowledge we had of the company, this was a successful transaction. We don't apologise for it and don't regret it."

He added: "The lesson to be learned from this whole exercise is 'is this the best system for getting the maximum value for taxpayer assets?'

"We accept the need to look at different methods and I suspect we may come back to the conclusion that the IPO route was the only one that made any sense."

The business secretary added that "there are other ways of doing it", citing ideas like trade sales and blind auctions.

Cable said he expected that any review would conclude that the process used for part-privatizing Royal Mail, through an initial public offering on the stock market, would be "the best method".

Billy Hayes, general secretary of the Communication Workers' Union, said: "For Cable and Fallon to continue to claim industrial action was the main reason they sold Royal Mail at a low share price is utterly ridiculous.

"The Committee heard that 'relatively few days had been lost to industrial action'. The shares were 24 times oversubscribed so for the Government to say they wouldn't have been able to get a good deal for the taxpayer is wrong.

"I agree with the select committee that all 'right-minded people' know Cable made a massive error when sanctioning the sale of Royal Mail at the price he did. It shows either that he's completely incapable or was downright careless with this public institution.

"It's clear Cable needs to go - this is a man who lost the taxpayer a billion pounds. A postal worker who lost a valuable item would be sacked and the same standard needs to apply to Mr Cable - he can't carry on as Secretary of State.

"It's beyond belief that the Government see nothing wrong with the sell-off and that shows the fundamental difference between them and Britain.

"People don't think it's right that the banks involved were able to sell shares to their investment arms and we need answers on why that was allowed to happen from the people in charge. We didn't get that today and it's simply not good enough."

A city regulator said the spike in the share price of Royal Mail on the day of privatisation was at the "top end" of what would be expected when a firm floated but there was no need to launch an inquiry into the sale.

Financial Conduct Authority chief executive Martin Wheatley told MPs on the Public Accounts Committee there was nothing to suggest a failure of regulation about the way the shares were sold.

He told the MPs: "If you wanted to look at where the failure was, the failure was in the pricing decision, not in the regulation."

Committee chairwoman Margaret Hodge demanded an inquiry into whether investment banks involved in the sale had properly followed the rules preventing them sharing inflation with their asset management arms which were allocated shares.

In its report, the NAO found that 16 "priority investors", selected by Vince Cable for their long-term investor potential, had cashed in on their shares allocation within weeks of the stock market float, making a substantial profit, with just 12% of the shares held by "priority investors" by the end of January.

Many of the shares were then seized by hedge funds, which Cable previously attacked as short-term investors who were "spivs and gamblers".

Shocking Things The Newly Privatised Royal Mail Has Done