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 gov.uk 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.
2 http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130425/wmstext/130425m0001.htm#13042544000002 Back
3
http://www.publications.parliament.uk/pa/cm201213/cmhansrd/cm130425/wmstext/130425m0001.htm#13042544000002 Back
4
Q2 Back
5
http://www.parliament.uk/documents/commons-committees/business-innovation-and-skills/2013-18-10-Vince-Cable-to-Adrian-Bailey-BIS-Inquiry-into-Royal-Mail-Privitisation.pdf.pdf
Back
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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