1 Apr 2014

Royal Mail: ‘Cautious approach cost taxpayer millions’

Taxpayers missed out on millions of pounds because of the way the government handled the sale of Royal Mail, the spending watchdog says.

The National Audit Office (NAO) said the government took a “cautious” approach to a number of issues which led to shares being priced at a level “substantially below” the initial trading price.

On the first day of trading last year, Royal Mail’s shares closed at 455p, 38 per cent higher than their price sale, representing a first day increase in value of £750m for the new shareholders.

‘Deep caution’

Amyas Morse, head of the NAO, 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.

“The government retained 30 per cent of the company. It could have retained even more and allowed the taxpayer to participate further in the rapidly increasing share price and thus limit the cost to the taxpayer.”

The government could have retained 110 million more shares, worth £363m, at the offer price, while still privatising the business, said the report.

Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale – Vince Cable

Critics of the privatisation said the spending watchdog offered “startling proof” that the government sold off the country’s family silver “on the cheap”.

But Business Secretary Vince Cable said the report showed that the government achieved what it set out to do – securing the future of the universal delivery service through a successful sale.

Mr Cable said: “We secured the future of the universal postal service through a successful sale of a majority stake in Royal Mail, predominantly to responsible long term investors.

“Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale.”

‘Sold shares within weeks’

The NAO also revealed that six priority investors sold all their shares within weeks of trading, while a further six sold part of their holdings, and four others increased their holdings.

The 16 priority investors were allocated £728m worth of shares, while another 94 institutions were given £570m worth.

The government of Singapore and the Children’s Investment Fund Management each have over 3 per cent of total shares, but other priority investors have not been named. Those which sold their shares made a “substantial” profit, said the report.

Three surplus properties with a market value of more than £200m were disclosed in the privatisation prospectus, but the NAO said it did not believe the basis on which the company was sold recovered this value.

Read more: will Royal Mail privatisation hurt or help?

The NAO pointed to “shortcomings” in the sale process, which it said made it difficult for the Business Department (BiS) to change the share price above 330p – the top of the range set by the government.

Recommendations by the NAO included looking at alternative methods of accessing equity markets and reducing reliance on professional advisers, which the report said cost £12.7m in the Royal Mail sale.

Shadow Business Secretary Chuka Umunna said: “This report delivers 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.

“At the same time, stamp prices have shot up by 30 per cent and vital services have been put at risk at a time when families are already being hit by a cost-of-living crisis.”