Was this a good deal for the taxpayer. The government says Yes. Well it would say that wouldn't it ! In a carefully worded but critical report, the National Audit Office certainly has doubts, The matter remains to be considered by the Public Accounts Committee. For an overall picture of the taxpayers true position, the arrangements with regard to pensions should also be considered - see Notes below.
The National Audit Office (NAO) exists by virtue of the National Audit Act 1983. The NAO is headed by the Comptroller and Auditor General (CAG) and the NAO website describes the current leadership team. The history of the NAO is, in itself, an interesting read.
section 6 of the National Audit Act 1983, the CAG has power to carry out examinations into the economy, efficiency and effectiveness with which any department, authority or other body to which this section applies has used its resources in discharging its functions. However, in doing this, the CAG is not entitled to question the merits of the policy objectives of any department, authority or body in respect of which an examination is carried out.
The latest report from the NAO relates to the privatisation of the Royal Mail. The government's response to this highly critical report has also been published. The CAG has 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 of to the taxpayer of its cautious approach.”
A small number of priority investors were allocated a larger proportion of their orders than other investors to reflect the Department’s expectation that the priority investors would form part of a stable, long-term and supportive shareholder base. However, almost half of the shares allocated to them had been sold at a substantial profit within a few weeks of the stock market launch.
It certainly looks like the "priority investors" saw their chance to make a quick killing. The government clearly sought privatisation which is, of course, a general government policy. The government did not wish the sale to fail and believes that its course of action was appropriate with around £2 billion raised for the taxpayer with the government continuing to hold 30% of the shares.
The Chair of Parliament's Public Accounts Committee (The Rt Hon Margaret Hodge MP) has stated:
"It is clear to me the Department for Business, Innovation and Skills undersold the taxpayer when it privatised Royal Mail. The share price closed up by 38% on its first day of trading which could have netted the taxpayer an additional £750 million.
I am frustrated the Department made a critical error by incentivising its private advisers to sell the shares on time at the expense of price - effectively setting itself up to fail.
The private advisers recommended not increasing the selling price before the first day of trading. With the sale 24 times over-subscribed this proved to be bad advice, with investors not taxpayers benefiting.
The fact the share price has increased by 72% since the Department sold the taxpayers’ share tells me the Department had no clue what it was doing.
I look forward to discussing this second class performance further when the Department appears before us on 7 May."
One to watch for those interested in the workings of government and how financial controls, checks and balances operate. Somehow, as is often the case with the present coalition government, I do not expect heads to roll though a little bit of egg on faces is to be expected.
From the NAO's full report:
A] Under European law, the government must ensure that there is a universal postal service five-days-a-week at affordable prices. The Postal Services Act 2011 strengthened this obligation and set out the UK’s requirement to provide a six-day-a-week, one-price-goes-anywhere universal service for letters (five-days-a-week for parcels). The UK letters market was fully liberalised in 2006 to introduce competition and Royal Mail’s competitors now handle around 45 per cent of all letters and around 75 per cent of bulk mail.
European Union Postal Legislation – Directive 97/67/EC as amended by Directive 2002/39/EC and Directive 2008/6/EC
B] Royal Mail’s historic pension liabilities were transferred to the government in April 2012(£37.4 billion of liabilities and £28.8 billion of assets, representing a deficit of £8.6 billion) following approval from the EU Commission under State Aid rules. On 1 April 2012,Royal Mail had no pension deficit on a funding (actuarial) basis. The transfer of the historical liabilities removed the obligation for Royal Mail to make additional cash payments of around £300 million every year to address the pension deficit. The final stage of Royal Mail’s pension reform was completed in September 2013 to ensure that the future pension accrual for current members was funded from regular contributions
The European Commission approved the pensions arrangements in March 2012.