My Lords, I would like to repeat the Answer to an Urgent Question given in the House of Commons:
“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 to 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, measured approach to the sale of shares. This approach was taken in 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. This 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 raise 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”.
My Lords, those of us who sat through the rather long and tortuous privatisation Bill remember saying to the Government at the time, “Beware of undervaluing Royal Mail, and beware of a quick sale”. I could not help smiling when the Minister said that the advice was unambiguous. It was unambiguously wrong, and most of those investors have sold most of the shares that they bought at a handsome profit. Given that the Government said when Royal Mail was sold off that its share price should be judged in three months’ time, does the Minister share my concern that taxpayers have been short-changed by the Royal Mail fire sale, or does he still believe that this legitimate concern is little more than “froth”? Does the Minister agree, after today’s findings by the National Audit Office, that it could have been possible to get far better value for taxpayers had the Government adopted a different timetable and perhaps not sold as many shares?
I do not agree with the sentiments of the noble Lord. Value for money for the taxpayer with Royal Mail is not just about raising money on day one but about removing the risk of the taxpayer having to fund the universal postal service in the future, and creating the conditions for the company to operate successfully and raise its own funds if needed. It is about the Government setting a good price when they sell their remaining stake and minimising the risk of the public having to subsidise the business in future. That is what we have achieved, and what the NAO has acknowledged.
The coalition Government are not the first to be badly advised by the City, and probably not the last. Will the Government therefore say that they got it wrong and apologise, in exactly the same way that they keep asking the previous Labour Government to apologise for their mistakes?
My Lords, we have absolutely no apology to make. I take this House back to the conditions in October 2013. With advice from the advisers, who were chosen through a proper process, the price was set according to the likely demand. As I mentioned earlier, at least 500 investors were consulted. It is fair to say that there is no evidence to suppose that if the price range of 260p to 330p had changed—330p being at the upper end of that range—it would have made any difference. Therefore, we feel that we got it right at the time, and do not have any apology to make.
My Lords, one of the sad things about this is that at the last stage of what was otherwise a very successful privatisation it seems to have been undervalued. What lessons have the Government learnt from this? What was the implication for the advisers? Did they take a reduction in the price they charged the Government for this performance, and would the Government use those advisers again?
The occasion will not arise for those advisers to be used, but I am pretty sure that we would use them again. Again, much work was done with those well chosen advisers. On the fees, which my noble friend raised, the investment banking syndicate fees were split into a success fee of 0.9% and a discretionary bonus of 0.3%. However, I hasten to add that that particular aspect is under review, and no decision has been made on it. There are always lessons to be learnt from these IPOs. I reiterate that this is one of the largest IPOs that has been handled for many years. One of the lessons that we should take on board—again, it is right that we should deal with it in this way—is the question of the book-building process. That is very much the traditional way in which one can build up shares in an IPO. There are other, novel ways of doing it, but we believe that it would have been too risky for such an important IPO to have taken that course.
My Lords, this is a devastating report for the Government, as it makes it clear that this was pure underpricing. In future privatisations, will the interest of the public taxpayer be a priority, and not just achieving a successful fire sale? Will the Minister also concede that while those City advisers were apparently impressively sharp, the Government, the department, the Ministers and the officials were, in the word used by the chairman of the Public Accounts Committee, clueless?
First, I do not agree with the first comment that the noble Lord made. He also made reference to a fire sale. I think it was said at the time, in October—I think by me—that this would be the longest fire sale in history, because my noble friend Lord Heseltine had mooted the idea of an IPO of Royal Mail many years ago. Indeed, the Benches opposite will know of the input into this from the noble Lord, Lord Mandelson. The National Audit Office report was not devastating but said that many of the decisions that we took were good; it said that we were right to be cautious and that it would have been wrong to take risks with such an important public asset as Royal Mail, or even to take risks with taxpayers’ money that would have been needed to support the company in continued public ownership. Had we adopted a more aggressive approach to pricing, there was a real risk that the deal would have failed. As the NAO says, the Royal Mail under public ownership would be worth much less than the sale proceeds.
I declare an interest as a small shareholder and ask for the Government’s view on the need to restore some of the quality of the longer-term institutional shareholders. In view of what has happened in the short-term transactions, would the Government consider the merits of holding on to their 30% stake longer than originally intended?
In terms of holding on to stakes, it is good to note that at least 50% of the original institutional investors have retained their investment, which shows an element of consistency. I point out again that nearly 700,000 retail investors took up the offer and employees took up 10% of the offer. To that extent, it has been a success.
My Lords, I have the Hansard for May 2011, when many of us were on to this very point right through the Bill, as my noble friend on the Front Bench said. Could the Minister comment on the validity of the following point? Having moved an amendment to say that any initial public offering—which was initially denied by the Minister as being at all feasible—should be phased, I said that,
“if the Bill reaches the statute book in its present form, in a year or so we will almost certainly have a repeat of the public interest being prejudiced by the modalities of the sale by merchant banks, as has happened some times before”.—[Official Report, 4/5/11; col. 463.]
Is the mistake made by Mr Vince Cable simply that he had a gentleman’s agreement, according to the report, with people in the merchant banks in the City, yet he was not making it with gentlemen? They have put £3 billion into their own pockets. Is that not the most scandalous announcement that we have heard from the Government in all their life?
I think that the gist of the noble Lord’s question referred to the timing of the sale. I remind him that there was industrial action hanging over this IPO, and much discussion was had over whether one should delay or stay. However, it was very clear that one should continue because the industrial strife was not necessarily going to be resolved and that was not going to impact on the timing. That is why we went ahead at that time.
I am quite astonished by the Minister’s complacency on this. The taxpayer has lost £750 million because of the incompetence of the Government. As my noble friend said, they were warned about it, not just in this House but by Chuka Umunna, Ian Murray and our spokesman in the other place. Is not it about time that the Government apologised for making the taxpayer lose £750 million? If they do not apologise for that, what will they apologise for?
My Lords, I say again that there is no apology to make. The process was robust in setting a price at the level at which it was set. I say again that there was no evidence of demand for the shares above 330p. Much work went into it and it was the right decision at the time. It is all very well for the noble Lord to say this with hindsight, but that is what it was at the time.
My Lords, surely, the point is that this is not being said with hindsight because these points were made at the time of the sale. I am bound to say that, listening to the Minister, for whom I have a great deal of respect, I agree with my noble friend Lord Foulkes: I am astonished by the complacency of the Government’s position. He talks as if there was no criticism in the NAO report, but there is clearly a criticism when the taxpayer has lost out to the extent that it has because the Government relied on the advice of those who stood to gain from giving it.
I do not say to the noble Baroness that there was no criticism. In fact, my noble friend Lord Stoneham asked me to point out whether lessons should be learnt. I gave my view, which is that there are always lessons to be learnt. Therefore, what the noble Baroness has said is not fair. However, there was very little criticism in the NAO’s report. It was a good report and we are pleased with it. We are also happy with the success of this IPO. We took a cautious view and we were right to be cautious.