Royal Mail Privatisation - Business, Innovation and Skills Committee Contents

2  Objectives of the Sale

7. On 25 April 2013, Michael Fallon MP, Minister of State, Business, Innovation and Skills, set out the initial details of the Government's programme for the privatisation of Royal Mail. This statement included the Government's objectives for the sale:

    We have put in place objectives for the sale which have been published today on the website. These objectives set out that we will sustain the universal postal service for the benefit of all users by securing Royal Mail's future through the introduction of private sector capital and associated disciplines.[2]

8. He said that the objectives would be achieved through:

·  Delivering a sale of shares in Royal Mail within this Parliament;

·  Creating an employee share scheme that, as Parliament has decided, will lead to at least 10% of the company in employee ownership, to drive stronger staff engagement; and

·  Delivering a financial outcome for the taxpayer, which when considered in the context of the overarching policy objective, represents overall value for money.[3]

9. In oral evidence (October 2013), the Secretary of State added to that list:

    One of the major objectives of this flotation is to try to obtain a long-term, secure, responsible, institutional investor base. That is primarily what this is about, and indeed we worked hard to sample views in that sector. This is about long-term, stable, secure investment.[4]

10. In written evidence the Secretary of State confirmed that Value for Money would be "central to our strategy" as the sale progressed. He went to define Value for Money in the following terms:

    Delivering value for money is about more than just the level of proceeds received on day one. Our long-term strategy to safeguard the universal service and deliver value for money for the taxpayer involves not only getting good value for the initial stake sold but also getting good value for the residual stake held by Government (30% of the Company assuming exercising in full the Over-allotment Option), and leaving Royal Mail in a strong, sustainable position capable of accessing the capital markets in the future.[5]

He said that the assessment of value for money, would be a "broad" test but that it started with "the proceeds now and in the medium to long-term".[6]

11. Following publication of the National Audit Office Report on the privatisation, the Secretary of State said that the Government's objectives had been achieved:

    The NAO report reached the important conclusion that we had successfully achieved our objectives. Under this Government, we have taken a loss-making public enterprise and turned it into a highly successful, respected public company.[7]

12. However, the NAO Report included a significant qualification in its conclusion:

    We consider that in order to achieve its main objective, the Department took a cautious approach to a number of issues which, taken together, resulted in the shares being priced at a level which was substantially below that at which they started trading.[8]

13. The NAO describes the subsequent return to the taxpayer in the following terms:

    The strong share price increase of 38 per cent on the first day of trading and the trading range throughout the first five months indicates that Royal Mail's shares are worth much more than this process was able to extract.[9]

It should be noted that the Government retains a 30% shareholding in Royal Mail, and that shareholding has therefore increased in value.

14. It is clear that the Government met its objectives in terms of delivering a privatised Royal Mail with an employee share scheme. However, it is not clear whether value for money was achieved and whether Ministers obtained the appropriate return to the taxpayer. We agree with the National Audit Office that the Government met its primary objective. On the basis of the performance of the share price to date, it appears that the taxpayer has missed out on significant value.

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4   Q2 Back

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6   Q5 Back

7   HC Deb, 1 April 2014, col 728 Back

8   National Audit Office, The Privatisation of Royal Mail, HC (2013-14) 1182, Summary, page 10, para 17 Back

9   National Audit Office, The Privatisation of Royal Mail, HC (2013-14) 1182, summary, page 10, para 18 Back

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Prepared 11 July 2014