Paul Mason watches Royal Mail shares hit the market – and asks why, in an era of food banks and falling wages, the government is allowing the “better off” to cash in through privatisation.
Shortly before daybreak I was at the offices of spread-betting firm IG to watch the market open for shares in the Royal Mail. It was deja vu for me, and anybody who lived through the 1980s and the dotcom boom – but many of the traders there have never actually seen a big British share issue.
If you sold your house and then the buyer sold it to someone else the next day at a 38 per cent profit you’d ask ‘what was the estate agent doing?’ Bill Hayes, Communications Workers Union
Soon they were wide-eyed: at one point there were bids to buy 62 millon shares but only 2 million on offer. Demand exceeded supply and the price was, within seconds, 450p per share – way above the 330p the government sold them at.
It now looks like about 30 per cent of those shares went to small investors, allocated £750-worth each. Which is a small pile of free money for them if they sell today, and about £700m the Treasury could have raised but didn’t.
It’s prompted accusations of a deliberate giveaway. Billy Hayes, general secretary of the Communications Workers Union, told me: “If you sold your house and then the buyer sold it to someone else the next day at a 38 per cent profit, you’d ask what was the estate agent doing.”
Vince Cable, the business secretary, who oversaw the share issue was unrepentant when I spoke to him today.
We fixed the price to get value for money over a long-term period… we are not interested in the spivs and speculators. Vince Cable
He said: “We sold at the top end of a range that had been very carefully thought through as a result of establishing the value over a long period of time in a market which is inherently unstable.
“If the American stock market had crashed, as it could have done a couple of weeks ago, it could well do in future, you’d be standing asking me why is it we didn’t manage to sell any shares.”
On its own this is not a “Tell Sid” moment – as in the 1980s when the government heavily touted shares in British Gas, knowing those who were allocated them would make a killing.
One reason is that it looks like nine out of 10 of the top institutional buyers were sovereign wealth funds from abroad – so any feelgood factor is going to be felt in Singapore or Kuwait as much as it is here.
But coming alongside the government’s help to buy scheme, which is also accused of fostering bubble-like conditions in the housing market, not coincidentally in the run up to an election, I put it to Mr Cable that it looks tawdry.
“This is nothing to do with giving away cheap shares,” he said. “You may well turn around to me in three to six months and say ‘why aren’t the prices higher?’
“We’ve got to adopt a more long-term approach. One of the messages that I’ve been preaching in government is the need for long-termism in the City. This is all about long-termism in the City, disrgarding the speculators and concentrating on long-term value.”
He added: “We fixed the price to get value for money over a long-term period… we are not interested in the spivs and speculators.”
Mr Hayes told me that he still expects his members, the vast majority of whom were given shares, to vote for strike action next Wednesday. If it tanks, the share price that is not our concern was the message.
Having seen three “bull markets” in the City, this does not exactly feel like one. For one thing – there’s not a lot left to privatise (though Lloyds Banking Group comes on the market later this year).
For another, there is record demand at food banks, and we’re in the umpteenth month of falling wages.
What’s driving demand is not that people are suddenly flush with cash – but that all forms of savings that are not ploughed into housing, gold or shares are losing you money right now, which is the express intention behind quantitative easing.
People are being encouraged by government policy to move into equities, so it’s a bit of a mystery why the government’s advisers thought the price should be 330p when it turned out to be as high as 450p on the first day of trading.
Mr Cable had the option to hike the price but didn’t and told me this morning that was in order to attract stable investors for the long-term.
I’ve become slightly sick of seeing re-runs of the “Tell Sid” adverts; this is not a repeat of the past but a new moment, produced by the conjuncture of a cheap money policy at the Bank of England, a real but sclerotic recovery, and some adept political decision making.
For while the unions are still arguing against privatisation, and for re-nationalisation, the public debate has swung to the question of whether the privatisation was botched. We’ll have the full paraphernalia now: the National Audit Office, the public accounts committee…
But the real news today is that a large chunk of the Royal Mail went private, and it’s a racing certainty that the government will flog the rest of it before the election.