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Royal Mail sale price 'too cautious', says spending watchdog Royal Mail sale price 'too cautious', says spending watchdog
(about 3 hours later)
The privatisation of Royal Mail did not achieve the best value for taxpayers because of the government's "deep caution", the spending watchdog says.The privatisation of Royal Mail did not achieve the best value for taxpayers because of the government's "deep caution", the spending watchdog says.
The National Audit Office said too much emphasis was put on completing the sale within this Parliament, at the expense of achieving better value for money.The National Audit Office said too much emphasis was put on completing the sale within this Parliament, at the expense of achieving better value for money.
Royal Mail shares are now more than 70% higher than the original sale price of 330p in October 2013.Royal Mail shares are now more than 70% higher than the original sale price of 330p in October 2013.
But business minster Michael Fallon said it was "right to be cautious". But Business Minister Michael Fallon said it was "right to be cautious".
Speaking on the BBC's Today programme, he said: "We could have got a higher price but we would have taken a bigger risk of people not subscribing to the shares and the Royal Mail share sale collapsing."Speaking on the BBC's Today programme, he said: "We could have got a higher price but we would have taken a bigger risk of people not subscribing to the shares and the Royal Mail share sale collapsing."
Shadow business secretary Chuka Umunna is expected to question Business Secretary Vince Cable in the House of Commons on Tuesday about the price at which the government sold Royal Mail.
Cancelled strikeCancelled strike
The privatisation of Royal Mail took place amid huge public interest and the shares rose by 38% to 455p on their first day of trading, representing an increase in value of £750m for the new shareholders.The privatisation of Royal Mail took place amid huge public interest and the shares rose by 38% to 455p on their first day of trading, representing an increase in value of £750m for the new shareholders.
The NAO report concluded that the Department for Business, Innovation and Skills was too cautious when setting the sale price of 330p per share.The NAO report concluded that the Department for Business, Innovation and Skills was too cautious when setting the sale price of 330p per share.
"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," said Amyas Morse, head of the NAO."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," said Amyas Morse, head of the NAO.
"Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer.""Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer."
A planned postal workers' strike, which was eventually cancelled after the privatisation, also affected the government's sale price.A planned postal workers' strike, which was eventually cancelled after the privatisation, also affected the government's sale price.
Demand for Royal Mail shares was 24 times the maximum number available to investors, the NAO said, but the banks overseeing the sale advised there was not sufficient demand to justify a significantly higher figure.Demand for Royal Mail shares was 24 times the maximum number available to investors, the NAO said, but the banks overseeing the sale advised there was not sufficient demand to justify a significantly higher figure.
George Godber, a fund manager at Milton Group, told Radio 4 that he was "astounded" by the low price.George Godber, a fund manager at Milton Group, told Radio 4 that he was "astounded" by the low price.
"I thought it was significantly underpriced. In stock market terms, this was the London 2012 Olympic ticket moment, lots of people applied but very few got to go to the opening ceremony.""I thought it was significantly underpriced. In stock market terms, this was the London 2012 Olympic ticket moment, lots of people applied but very few got to go to the opening ceremony."
Managers from two of these advising banks - Goldman Sachs and UBS - said market uncertainty and the complexity of the deal led them to a conservative price when they were questioned by MPs in November last year.Managers from two of these advising banks - Goldman Sachs and UBS - said market uncertainty and the complexity of the deal led them to a conservative price when they were questioned by MPs in November last year.
They said there was a significant risk that raising the price past the £3.30 they had advised would diminish investor interest.They said there was a significant risk that raising the price past the £3.30 they had advised would diminish investor interest.
The NAO report notes the government has benefited from the increase in Royal Mail's share price via the 30% stake it still holds.The NAO report notes the government has benefited from the increase in Royal Mail's share price via the 30% stake it still holds.
But it argues the benefits could have been even greater had the government kept a larger stake, while still fulfilling its policy objective of reducing public ownership to below 50%.But it argues the benefits could have been even greater had the government kept a larger stake, while still fulfilling its policy objective of reducing public ownership to below 50%.
OverhaulOverhaul
The spending watchdog also noted that a small number of priority investors, who were allocated a larger proportion of their orders than others, have made significant profits from the increase in the sale price following the privatisation. The spending watchdog also noted that a small number of shareholders, designated as "priority investors", had made significant profits from the increase in the sale price following the privatisation.
Responding to the report, Business Secretary Vince Cable said: "Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale." The government had allocated larger proportions of their shares orders to these 16 investors, in the belief that they would form part of a stable long-term and supportive shareholder base.
However, almost half of the shares allocated to them had been sold within a few weeks of the IPO.
Responding to the report, Mr Cable said: "Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale.
"The report concludes there was a real risk of a failed sale attached to pushing the price too high. And a failed sale would have been the worst outcome for taxpayers and jeopardised the operation of Royal Mail going forward.""The report concludes there was a real risk of a failed sale attached to pushing the price too high. And a failed sale would have been the worst outcome for taxpayers and jeopardised the operation of Royal Mail going forward."
And a spokesman for Mr Cable's department said the sale had raised some £2bn for the taxpayer.And a spokesman for Mr Cable's department said the sale had raised some £2bn for the taxpayer.
They added: "By retaining a 30% stake in the business we have made sure taxpayers have benefited from dividend payments and will continue to benefit from share price rises after the sale."They added: "By retaining a 30% stake in the business we have made sure taxpayers have benefited from dividend payments and will continue to benefit from share price rises after the sale."
However Margaret Hodge, chair of the Public Accounts Committee (PAC), said the sharp rise in Royal Mail's share price since the sale showed "the department had no clue what it was doing." However, Margaret Hodge, chair of the Public Accounts Committee (PAC), said the sharp rise in Royal Mail's share price since the sale showed "the department had no clue what it was doing."
And shadow business secretary Chuka Umunna said Mr Cable could no longer dismiss the share price rise. Mr Umunna said Mr Cable could no longer dismiss the share price rise.
"He and David Cameron have serious questions to answer on the hundreds of millions of pounds they have lost British taxpayers and cannot duck responsibility for what has happened," he added."He and David Cameron have serious questions to answer on the hundreds of millions of pounds they have lost British taxpayers and cannot duck responsibility for what has happened," he added.