POLITICS

Royal Mail Sale Would Have Thatcher 'Turning In Her Grave', Warns Margaret Hodge

30/04/2014 17:46 BST | Updated 30/04/2014 17:59 BST
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A logo sits on the cap of a Royal Mail Plc employee as he collects pre-sorted letters for delivery from a sorting machine at the company's Mount Pleasant postal sorting office in London, U.K., on Tuesday, Feb. 11, 2014. Royal Mail, the U.K. postal service that sold shares in an initial public offering last year, said like-for-like sales gained 2 percent in the first nine months of the year boosted by parcel deliveries. Photographer: Chris Ratcliffe/Bloomberg via Getty Images

Royal Mail's controversial privatisation would have Margaret Thatcher "turning in her grave" as the business' shares went to a "masonic lodge" of City firms rather than ordinary investors, Labour MP Margaret Hodge has warned.

Hodge, chairman of the influential Public Accounts Committee, launched a fierce attack on the Royal Mail's stock market flotation as the government revealed the hedge funds and City firms that made up the 16 "priority" investors who got special access to Royal Mail shares when it floated on the stock market.

Hodge said Royal Mail's part-privatisation, which saw 12 of the 16 priority investors sell some or all of their allocated shares within weeks of it floating last October as Royal Mail's share price surged, left her with an "uncomfortable feeling" that the City firms "made a killing at the expense of the ordinary taxpayer".

City firm Lazard & Co, which helped the government set a 330p-a-share initial price for Royal Mail, admitted that its asset management arm, a Royal Mail priority investor, made "approximately £8 million" when it sold its 6 million shares within the first week of its flotation at around £4.70-a-share. However, they told MPs that there was a "Chinese wall" which meant their advisory arm's work was not "tainted" by its asset management business.

Chief executive William Rucker said that when it was appointed to advise the government on the Royal Mail, it had been unaware that its asset management arm was in talks with the business, adding: "When we learned this, we made it clear we should have no discussions about [share] allocations."

Referring to the former Conservative prime minister who was renowned for her privatisation agenda, Hodge said that "Mrs T would be turning in her grave to see who those shares ended up with."

Hodge said that there were "more than enough" everyday investors who could have bought the 60% of the business sold by the government through the stock market flotation.

However, Mark Russell, chief executive of the Shareholder Executive, which oversees such processes, said that it "would not have given the Royal Mail the sort of shareholder it needed moving forward".

Royal Mail's share price soared by 38% on the first day of trading, going on to rise by 72% over the first five months from its 330p-a-share price, with taxpayer estimated to have lost out on £750 million due to its cautious pricing.

Hodge went on to lash out at the "cosy clique' of City firms for profiting from the sale of the 500-year old business, comparing them to a "masonic lodge".

She said: "It leaves the general public just with that uncomfortable feeling that there is just too cosy a relationship."

"It ends up with this little group... [who]...made a killing a the expense of the ordinary taxpayer, who lost out to the tune on Day 1 of £750 million, and that is really, really uncomfortable."

"It just feels wrong and it almost feels to me like an institutional masonic lodge."

Tory committee member Richard Bacon questioned whether Lazard, which received £1.5 million for its advice, had been "really independent".

He suggested that the firm "had a substantial group interest in the success of one of its subsidiaries" and that the group was not "disinterested" in the privatisation process.

A Business department spokesperson said: “Lazard were appointed to advise on the Royal Mail sale following a competitive procurement process. Seven potential advisers were invited to bid for this work. Three were interviewed, and Lazard was selected as it had the highest score against the evaluation criteria.

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