The National Audit Office has today published its report on the Royal Mail sale of shares. The report confirms that we achieved our primary objective of securing a sale of shares, allowing Royal Mail to access the private capital it needs to invest and thrive. As a result the taxpayer now faces reduced risk of having to provide financial support to the universal postal service.
It was right that we took a cautious and measured approach to the sale. That approach was taken in the light of our primary objective, and reflects the considerable risks we faced due to industrial relations and challenging market conditions.
The price range for the shares was set following a comprehensive programme of engagement with over 500 potential investors and was benchmarked against valuations of comparable postal companies. I am clear that this was the correct approach to secure a successful transaction.
A more aggressive approach to pricing would have introduced significantly greater risk. The advice that we received in this respect was unambiguous. There was no confidence that a sufficient number of buyers would offer a significantly higher price. A failed transaction and the retention of Royal Mail in public ownership would have been a very poor outcome for the taxpayer, as the NAO report confirms.
Achieving taxpayer value is about securing both short-term and long-term benefits. In the short term, we have delivered a successful transaction, which raised £2 billion for the Exchequer, enabled over 690,000 members of the public to buy Royal Mail shares and put in place the largest employee share scheme of any privatisation in nearly 30 years. In the long term, we have reduced the ongoing risks to the taxpayer by putting Royal Mail in a position where it can operate commercially and finance its own funds if needed. In doing so, as the NAO confirms, we have achieved our key objectives.
The sale of shares in Royal Mail has delivered on our commitment to protect the universal postal service and safeguard vital services for the taxpayer.
Mr Speaker, you know it is April fool’s day when a report is published by the National Audit Office saying that
“the Department…could have achieved better value for the taxpayer”
but Ministers go out to the media, and come to this House, to declare their privatisation a success. They must think we are all fools. What planet are they living on?
There are no two ways about this: the report delivers a damning verdict on the Government’s botched privatisation, which has left the taxpayer disgracefully short-changed to the tune of hundreds of millions of pounds. Let us be clear: the issue was not whether they would be able to sell all the shares—one can usually flog off something for a knock-down price—but whether, in so doing, they secured best value for the taxpayer. They have sought to hide behind the advice they received from the bankers, who made millions out of the deal. Will the Secretary of State confirm that those advisers acted within “inflexible” constraints set by Ministers to achieve a sale as soon as possible in this Parliament? Had they waited for the markets to settle and for further years’ profits to be delivered, they could have achieved a better price. Secondly, is it not the case that having judged that Royal Mail’s profits were doomed to decline, far from making an objective judgment, they simply refused to entertain the notion that it could succeed in public hands, although the financial results for the last financial year showed a trebling of profits?
Finally, we were promised that the Secretary of State would secure a long-term and supportive shareholder base, but the opposite has turned out to be true. Will he confirm that the 17 supposed long-term investors he prioritised had sold almost half the shares allocated to them within weeks and that hedge funds now make up a large number of the shareholder list?
The Secretary of State dismissed claims that a cherished national institution was being sold off on the cheap as “froth”. The truth is that this has been a first-class disaster for the taxpayer and those he once referred to as “spivs and gamblers” are laughing all the way to the bank. The very least he can do today is apologise.
The last thing I intend to do is apologise. What I do intend to do is refer to what the report actually said, as opposed to the spinning and froth that is being generated around it. Let me read again the report’s initial conclusion on value for money:
“By floating Royal Mail on the Stock Exchange the Department achieved its key objectives of introducing private capital and commercial disciplines. Given Royal Mail’s prospects and prudent initial capital structure it is now less likely that the taxpayer will have to provide public support for the universal postal service.”
That is what it actually said.
Let me address the criticisms, if that is what they were. The first was that the Department was cautious, but I would have thought that caution in this context had a lot to commend it. The reason the Department was cautious was the very real risk that the floatation could fail. The choice we faced was: had the floatation failed, it would have remained in public ownership and, despite the hon. Gentleman’s preference for keeping it in public ownership, the valuation placed on it continuing in public ownership was about £1 billion. That was not disputed by the National Audit Office. The alternative—the floatation which happened—resulted in a value for the taxpayer of £2 billion in cash and £1.5 billion in continued value of the retained sale. There was a choice between the £3.5 billion that resulted from the privatisation and the £1 billion had it failed, so it is absolutely right and sensible that we were cautious.
The hon. Gentleman made the point that there was a lack of flexibility in the initial public offering system. Indeed, the National Audit Office makes that point: there was a lack of flexibility. The question, therefore, is: were there any alternatives? Could this have been done in a different way? The Government could have eliminated the retail investors and had more flexibility over price at the time of sale, but as it happens one of the successes of the privatisation is the fact that 670,000 investors now have shares.
The other way of selling Royal Mail would have been through a trade sale, and of course we looked at that as an option. One of the reasons we did not pursue it was that we looked at the history of privatisation under the Labour Government. and there was one very good example of what happens when a trade sale is pursued: I refer the hon. Gentleman to the NAO report on the privatisation of QinetiQ. What happens with the supposed flexibility of a trade sale—[Interruption.]
Order. Mr Blenkinsop, before Christmas I specifically advised you to take up yoga or some other similarly therapeutic and calming activity. Moreover, your brother very wisely purchased you a book on the subject. It is evident to me that you have not yet read it.
What happened in that trade sale was that a company with an equity value at sale of £125 million was eventually valued at £1.3 billion—10 times what the Labour Government sold it for. That is the alternative model with which we were confronted.
Let me address specifically the issue of the long-term institutional investors. The hon. Gentleman is absolutely right to say that one of the key objectives, to which I attach particular importance, was ensuring that the long-term institutional investor base was strong, and indeed it is. When the hon. Gentleman looks at the breakdown of share ownership, he will see that between two thirds and 70% of the shares held as a result of the IPO are held by those long-term institutional investors. When we put that with the Government’s retained shares and those of the workers, we see a very large majority of investors who are committed to the long-term strength of the company. One does have to ask the question: why did some of the long-term institutional investors sell? Some bought, some sold. The reason they sold was that they considered the share price after sale was overvalued. It was an obvious market reaction, and that was the consequence. None the less, having a long-term investor base remains a basic objective, and we have achieved that fundamental objective.
Let me turn to the issue of the valuation, to which so much importance is attached. It should be blindingly obvious, although I do not think it is to the Opposition, that trying to sell 600 million shares at one go is a fundamentally different proposition from the 2 million to 3 million sold in daily trading, which explains why the price has varied since the flotation.
I have said and I continue to say that there is a great deal of froth in the valuation of this and other shares—that is how equity markets operate—and this particular share is surrounded by a great deal of volatility. There are two main reasons for that. The first is a great deal of uncertainty over industrial relations in a company that has had a very troubled industrial relations history. It is worth pointing out—I do not know whether the hon. Gentleman noticed—that the mere mention last week of a Unite strike took the stock price down by 20p. That was the context in which we had to make the sale. The second key point—[Interruption.] I am trying to respond to the hon. Gentleman’s points. [Interruption.]
Looking at the volatility of shares, this company is exposed to a considerable level of competition, as a result of actions of regulators beyond the Government’s control. The estimate has been made—I think that I cited this to the Business, Innovation and Skills Committee —that a 1% fall in sales is the equivalent of a 17% fall in profits for this company. We hope, and we have every reason to be optimistic, that with the very good management of the company, the co-operation of the work force and the investment that privatisation now makes possible we shall have a positive outcome in terms of competitiveness, but there is a great deal of uncertainty, which lies behind the volatility of the shares.
We in the Government have been criticised, not least by the Select Committee, over the past few months because we failed to take account of the estimates made by the banks that were bidding for business. One section of the NAO report—the hon. Gentleman has clearly not read it—completely vindicates the Government’s decision to ignore those estimates as completely worthless. They were touting for business, the estimates had no value whatever and we were quite correct to ignore them. Much of the propaganda that he and his colleagues have developed over the past few years has proved to be completely beside the point.
Let me make a final point on valuation. The hon. Gentleman gave us a lecture on the dangers of undervaluing public assets, but let me just quote to him his Government’s experience of the difficult art of valuing assets. The former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), sold large quantities of gold at between $250 and $300 an ounce, but the price subsequently increased to more than $1,500—five times the original value. That is the nature of the highly volatile markets in which we have to operate.
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.
Order. There is much interest in this subject that I am keen to accommodate, but some pithiness from Back and Front Benchers alike would be appreciated. [Interruption.] Order. The Secretary of State was sorely tested by a lot of very noisy heckling. It is always a pleasure to listen to the right hon. Gentleman, and I know that he will take it in the right spirit if I gently point out to him that his response to the shadow Secretary of State was four times longer than his original statement. A degree of economy would help us all, and I feel certain that this exercise will be led by the illustrious figure of Mr Brian Binley.
The evidence that the Select Committee heard on this issue showed that the prime movers in the bid, as contracted by the Department, had a range of up to £3.30. They confirmed to the Secretary of the State that no bidders would go above that level. That proved to be totally untrue. Their colleagues who helped build the book made a killing at the expense of the taxpayer. Can we be assured that such a debacle will not happen again, that the system will be changed, and that there will be a fairer deal for the taxpayer than we have got from this unethical and, quite frankly, immoral procedure?
I think that the hon. Gentleman misunderstands the basis on which the valuation was made. It was based on a sampling of 5,000 potential buyers among institutional investors and on a comparison with similar privatisations, such as that of the Belgian post office. The process was rigorous and it had nothing whatever to do with the undue influence he describes.
The fact remains that the key determinants of the pricing were a select group of banks, acting as advisers to the Government or in the book-building process. From the perspective of the taxpayer, the sight of banks advising the Government on a price and then buying shares at that price and selling them at a profit or, in some cases, subsequently buying them at higher prices absolutely stinks. Will the Secretary of State assure us that, in any future privatisation, no bank that is involved in advising the Government on the price level will be allowed to buy shares?
Does my right hon. Friend agree that, despite the great hindsight shown by the Labour party, the decision was taken on the basis of the risks that we faced at the time? We should not have taken risks at any cost. If we had, the Labour party would be criticising us for a failed privatisation instead of a successful one.
Is the Secretary of State aware that what he has said will reverberate every single day until the general election, including in Twickenham, as those postmen and women who have been slagged off by him from the Dispatch Box today talk on every single doorstep? What they all want to know is that not one single penny from those priority bidders will finish up in the pockets of the Tory party or the Liberal party.
Not even Michael Heseltine at the zenith of his ministerial powers and capacity felt that he would be able successfully to privatise Royal Mail. Are not ministerial colleagues much to be congratulated on having privatised Royal Mail so successfully? Does my right hon. Friend agree that it does not lie in the mouths of those who left this country with an eye-watering public deficit to talk about concern for the taxpayer’s interests?
The right hon. Gentleman’s initial remarks are apposite. Successive Governments have tried to privatise the Royal Mail for a long period. I would understand it if the Opposition had taken a principled stand on public ownership, but they have not. Indeed, I inherited a failed privatisation from the Labour Government and we made a success of it.
It does not at all. The fact that the Royal Mail was improving its commercial performance is very good news, but it was over one year and it had to be sustained. The only way in which its profitability could be maintained was through large-scale investment, and the only way in which it could entertain making large-scale investment was by using capital markets under private ownership.
Yes, I do. We need to go back to the fundamental reason why not just this Government but the Labour Government accepted that the company had to go into private ownership: it was about mobilising a large amount of investment without it falling on the public accounts. That is what we have achieved.
Seventy-seven per cent. of Scottish people opposed the Royal Mail privatisation and 78% of Scottish MPs voted against it, but Scotland got it. After this travesty, what should the Scottish people do this year to ensure that we get the postal services that we want and require?
I am aware that the Scottish National party has said that it will renationalise the Scottish bits of Royal Mail if it gets independence. It has not explained how it will pay for that, nor has it explained how it will pay for the extra cost of the universal service obligation in an independent Scotland.
Certainly, one of the significant factors hanging over the privatisation was the threat of industrial action. There was no point in postponing it, because the industrial action would have been rolled over. It certainly had a depressive effect on the market.
When the Secretary of State gave evidence to the Business, Innovation and Skills Committee about this issue in October, when I was still a member of the Committee, we questioned him about what we perceived to be an undervaluation. He said that rather than looking at the value a few days after flotation, it would be more realistic to look at it after three or six months. We are now there and it was clearly undervalued. What does he say to the British people about giving away one of our national assets?
I think that what I actually said was between three and six months on the one hand and a year on the other. I have subsequently been criticised by people in the market, who feel that that is too short a term and that two years would be a better perspective.
May I declare my interest as a former employee of QinetiQ? Will my right hon. Friend reflect on the National Audit Office report on the privatisation of that company under the last Government, which not only concluded that they undervalued QinetiQ, but strongly criticised the management incentive scheme, which rewarded the top 10 managers with £107 million of taxpayers’ money? Does he agree that the best thing the Opposition could do to learn from the privatisation of the Post Office would be to digest that report and come here to apologise?
This Government, like the previous Conservative Government, have form. One need only look at the denationalisation of the energy industry and the railways, which were sold off cheap. What will the Secretary of State do about the increase in the price of stamps and the redundancies at Royal Mail?
The hon. Gentleman will know that the first-class stamp is subject to regulation. He assumes that the commitment to sell off Royal Mail was simply a product of this Government and previous Conservative Governments. He seems to have forgotten that the last Labour Government tried to privatise Royal Mail.
The NAO report shows that about 167,000 employees of Royal Mail —nearly 100%—have taken up the option of the free shares, which has given them a stake in its future. When a sale delivers nearly £2 billion to the taxpayer, creates nearly 700,000 retail investors and gives so many people a stake in the future of their business, is it not something that we should celebrate?
The Secretary of State has given an estimate of what profits the public will make from their 30% share ownership in the company. Will he say what the loss of profits would be to the public over the next five years had we done the correct thing and kept Royal Mail in public ownership?
Does my right hon. Friend agree that almost all initial public offerings are put forward at a discount—indeed, at a larger discount than secondary public offerings because there is no market in the shares until the offering has been made? Does he also agree that because of the large supply that comes on at the point of an IPO the discount has to be considerable, and that the stock price having done so well is a sign of enormous confidence in the economic policies of Her Majesty’s Government?
The Government’s advisers, Goldman Sachs, made more than £12 million profit from the sale of Royal Mail shares —a gross conflict of interest by any standards. Will the Secretary of State rule out completely the payment of any bonuses to those advisers, and put the money back into the public purse?
We are having this urgent question because the flotation of Royal Mail was more successful than anybody thought possible up front. Almost 100% of employees took up their shares, 700,000 retail investors bought shares, and institutions invested massively. The Government are now a 30% shareholder. What plans do they have for the long-term future of their shareholding?
Seventy per cent. of the issue was reserved for financial institutions, including hedge funds. This morning on the “Today” programme, the Minister of State, Department for Business, Innovation and Skills (Michael Fallon) repeatedly said, “We got it away”. Would it have been more accurate for him to say, “We gave it away to our hedge fund friends who have given £38 million to the Conservative party”?
In his remarks the shadow Secretary of State referred to profiteering by spivs and gamblers. Will the Secretary of State confirm that the rate at which bankers were paid for this offering was approximately half the rate paid for QinetiQ?
Despite hedge funds and shareholders making a killing from Royal Mail, it seems that is not enough. Yesterday, the price of a first-class stamp went up by more than 6%—more than twice the rate of inflation. Having failed to protect the taxpayer, what will the Government do to protect the consumer, particularly in the monopoly areas of this now private company?
I spoke with Royal Mail employees when I visited their sorting office in Crawley a few months ago, and they were pleased with the free shares they were given. Will my right hon. Friend say how important that is in terms of employees having a stake in their future business?
Royal Mail has something like 2,000 properties in high-value areas of real estate round the country. It was valued at approximately £1 billion, when one of those sites in London is itself equal to £1 billion in real value. How come it was sold off so cheaply to the detriment of taxpayers and my constituents?
I do not think the hon. Gentleman was listening to one of my earlier replies in which I made it clear that an independent valuation of those sites confirmed the authenticity of what was proposed. It was in the prospectus, and nobody has subsequently challenged that.
I have been listening with amazement to the crocodile tears from Opposition Members. Should we not celebrate the successful privatisation of Royal Mail, which enables it to compete more successfully in a challenging environment and give its employees a much more secure future?
Many of the other 69 million have policies with the leading pension funds and insurance companies, which were the long-term institutional investors in which these companies are now invested, so there is actually a much wider benefit. We have repeatedly made the point that had the flotation failed, the rest of the population would have been up for the losses.
In the past three months in my constituency 25% of mail was delivered by companies other than Royal Mail. Does my right hon. Friend agree that that represents a direct challenge to Royal Mail, and that it is vital that the work force and private investors put in capital so that it can successfully compete against other competitors?
My hon. Friend is right. That is why a do nothing option was not viable, and why the alternative that the shadow Business Secretary promotes of just letting this drift was not sensible. Royal Mail is subject to severe competitive pressure, and ultimately it is subject to regulation at UK and European level—that is not something the Government can stop. All we can do is help equip Royal Mail to face that competition, and that is what we have done by putting it under private ownership with access to capital markets.
If the Minister will not accept responsibility and consider his position, will he at least admit what a disaster this has been for the taxpayer, commit himself to a review of what happened, and reassure the House that it will not happen again?
There is no disaster or reason to apologise for what has taken place. There are many positive aspects of this privatisation, which I have already set out. Of course there are lessons to be learned regarding more technical criticisms that the NAO has made about the flexibility of the process, and we will listen to those should such a situation arise again.
The comparison of this privatisation with QinetiQ is relevant because, subsequent to that privatisation, many employees in Bedfordshire were thrown out of work while the bosses ran off with 107 million quid. Can my right hon. Friend advise me how much money the bosses of Royal Mail made from this privatisation, and say what has happened to the employees in terms of their security of employment and pensions?
One of the most attractive features of Royal Mail privatisation has been the increase in employee share ownership. I am particularly pleased that free shares were issued to postmen and postwomen, especially the hard-working posties in Kettering. Will the Business Secretary tell the House how much the average stake that Kettering posties have in Royal Mail is now worth?
Never mind what the independent report says, Mount Pleasant was sold off for two acorns and a button. It is a large development site right in the centre of my constituency. An independent viability report says that 50% of the site could be used for affordable social housing, but what are the developers saying? They are saying that they can afford only 12%. Boris has stepped in and will presumably come down in favour of the developers. If the Secretary of State is not prepared to apologise, will he at least condemn these greedy spivs?
Does the Secretary of State agree that the loss of £750 million in one day warrants closer examination or an inquiry? At the time of the sale, he indicated that no jobs would be lost and that jobs would be retained. The suggestion in the press today, and from the unions, is that jobs will be lost. Will the Secretary of State say what discussions he has had with the new owners of Royal Mail and those in a position to indicate whether jobs will be retained?
Because we no longer own Royal Mail—we are a substantial minority shareholder—we do not dictate to it what its manpower policy should be. Many jobs were of course lost under public ownership. As I understand it, the proposal currently being put forward, and which is being contested by Unite, relates primarily to white collar executives rather than members of the Communication Workers Union, but that is a matter for them to resolve.
Sadly for the British taxpayer, the NAO report is no April fool. The Secretary of State claims that the sale met all the Government’s objectives. Will he now confirm which hedge funds that donate to the Conservative party benefited from the sale? If he cannot confirm that now, will he write to me and do so? Will he confirm whether that was one of the Government’s objectives?
The Secretary of State seems to be trying to talk about anything except why he allowed the British taxpayer to be ripped off by the underpriced sale of the profitable Royal Mail. Will he give us assurances that his Government will not privatise another national treasure, namely the Land Registry, which makes £100 million of profit per year,?
We are looking at the future of the Land Registry at the moment. It is a respected institution, but it is having to cope with the challenges of digitisation. There are arguments for and against having private partners. We are looking at what is the best outcome for the taxpayer and the consumer.
Will the Secretary of State comment on what many of my very commonsensical constituents are saying? They are saying that they used to own Royal Mail and now only a very few people own it. Many of these voters are former Liberal Democrat voters. They are asking: when did the Liberal Democrats become so converted to this cause, and, if Goldman Sachs and others made such a hash of the advice, can they get their money back?
The Secretary of State was warned beforehand that he had undervalued the sell-off. He did not achieve value for money, and priority investors stand accused of profiteering. The public feel ripped off and will wonder why he is still in his job. How can this possibly be a success?
I fear a lifetime of yoga would never allow me to perform the contortions the Secretary of State has performed at the Dispatch Box today. I, like my constituents, am very angry that figure 20 on page 48 of the NAO report shows that one priority investor was allocated just shy of 20 million shares and has since sold 97% of them. Another, who was allocated about 18 million shares, has sold 89% of them. Were they given priority because they are mates of the Government?
The hon. Gentleman seems to be one of the few Opposition Members to have actually read the report, and I commend him for that. There were, of course, other companies and priority investors who invested considerably more. Indeed, I think that one has increased its stake by well over 100%.
While I am on my feet—I think this is the last question —may I just correct a slip of the tongue where I referred to the regulation applying to the first class stamp? Obviously, it applies to the second class stamp.
I am pleased to say to the Secretary of State that the pace quickened and we got through 40 Members in 37 minutes of exclusively Back-Bench time, so I am deeply grateful to the right hon. Gentleman and to colleagues.
National Parks (Governance)
Presentation and First Reading (Standing Order No. 57)
Tim Farron, supported by Roger Williams, Dr Julian Lewis and John Woodcock, presented a Bill to give powers to the Secretary of State to provide for elections to be held to the governing boards of National Parks on a pilot basis; and for connected purposes.
Bill read the First time; to be read a Second time on Friday 6 June, and to be printed (Bill 194).