Royal Mail sale lost taxpayers £1 billion

Friday 11 July 2014

Taxpayers have lost £1 billion over the privatisation of Royal Mail because the Government underestimated demand for shares, a committee of MPs has reported.

Ministers were accused of being afraid to fail over the controversial sell-off last year, and of receiving "poor quality" advice. The Business Select Committee said taxpayers were missing out on "significant value."

In a hard-hitting report, the committee also expressed concern that the Government had failed to get an adequate return on privatised Royal Mail assets, such as multi-million pound sites in London. The MPs concluded that the advice ministers received on the sale was not up to standard.

The committee found the Shareholder Executive, Lazard, the Government's financial adviser, and UBS and Goldman Sachs (the Government's global co-ordinators) failed to gauge demand at higher price levels and did not give appropriate consideration to maximising value for money for the taxpayer.

Committee chairman Adrian Bailey said: "It's not at all clear that the Government's sale of Royal Mail has brought an adequate and appropriate return for taxpayers. The basic facts are that the offer price was 330p per share, the price has risen as high as 618p per share, and now stands around 473p. The Government cannot blithely dismiss as 'froth' our committee's concern that the low issue price of this prime public asset has cost the taxpayer around a billion pounds."

The committee said it was "disturbed" that the Government may have failed to reap the benefits of the sale of Royal Mail assets included at privatisation, including three sites in London valued by the Business Department at around £200 million but reported by the National Audit Office (NAO) to possess a 'hidden value' worth £330 million to £830 million.

The committee found the Government ignored established NAO recommendations that these assets should either be removed from the privatisation process or that claw back provisions be inserted on the future sale of the properties. The MPs also found that many priority investors "bought cheaply and sold quickly" at a profit, adding that the current ownership of Royal Mail by long-term investors had "little to do" with the actions of Business Secretary Vince Cable.

The Government was urged to publish a list of the preferred investors, including information on which investors sold their shareholding, and at what price. The committee recommended that companies advising the Government on share issues should be excluded from becoming a preferred investor. A review has been launched into the process for selling government assets following controversy over the privatisation.