The disastrous Royal Mail sale didn't lack hindsight, it lacked foresight
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Version 0 of 1. Everyone else is wrong, we were right. This was essentially the position of the business secretary, Vince Cable, and the business minister, Michael Fallon, as they faced tough questions from the parliamentary business select committee over the sale of Royal Mail. "It was a successful flotation. I have not seen any evidence that the shares were undervalued at the time of the flotation. I stick by the share price," Fallon said. In the light of a National Audit Office report which found that the company had been vastly undervalued, this is denial of almost pathological magnitude. The two embattled cabinet members even went as far as blaming the vague spectre of industrial action for the low valuation, as if markets had no knowledge of such possible action when they bought shares at a much higher price. When questioned about the fact that six of the 16 "priority investors", who were chosen to receive an earlier and larger share of the flotation on the apparent basis of being long-term investors, had actually sold their shares almost immediately for huge profit, Cable replied: "It is how markets work." This was one of the most disheartening aspects of their evidence. Here were two politicians – one a neoliberal, the other supposedly progressive – closing ranks to save their jobs; not a cigarette paper between them in all matters privatisation, free market infallibility and union bashing. Cable's transformation into a full-bloodied Tory was complete; history was being rewritten in front of the committee's incredulous eyes. Chairman Adrian Bailey MP remarked: "They seem to think that if you repeat certain assertions long enough, they will become true." Fallon claimed the fact that two years ago Royal Mail was making a loss and now is one of Britain's top 100 companies was proof of the success of the privatisation. The sentiment was echoed today by David Cameron during PMQs: "this business was losing a billion. It is now making money, paying taxes, gaining in value". The implication is that this is something which magically occurred after it was privatised. It is simply not so: its return to profitability has much more to do with changes that occurred before it was sold. The state decided to retain Royal Mail's biggest liability – pensions. The rest of Royal Mail was already highly profitable when it was sold. It was not a drain on government funds, but contributing to them. According to the government's own list of "myth-busters" accompanying the sale "[Royal Mail was] on the road to sustained profitability". It had also accumulated a backlog of more than £2.8bn of tax credits, and was already a top 100 company when it was sold at a cut price. When it emerged that companies advising on the sale were offered millions of shares, the business department said that this was not an issue because there were "Chinese walls" between the advising and purchasing divisions. When it transpired that one of the biggest potential private beneficiaries from the flotation was hedge fund management company Lansdowne Partners, and that George Osborne's best man, Peter Davies, was part of their management team, more denials came: "At no point was George involved in, or even made aware of, the allocations," said a Conservative spokesman. Lansdowne has denied anything improper. Questioned about it today, the prime minister had nothing to say. But the most insidious, most outrageous and grandest misdirection being put forward by those responsible is that nobody could have seen this coming. Plenty saw it coming and warned the government explicitly. Experts from investment bank Panmure Gordon said the government's lower estimate could be undervaluing Royal Mail by up to £1.9bn, or in excess of 40%. Labour pointed out that the valuation did not seem to include up to £1bn of property assets, such as the Mount Pleasant or Nine Elms sites in London. Even Goldman Sachs, one of the two companies employed by the state to facilitate the sale, advised its investors that the share price would settle at 610p within a year, less than a week after advising the government on a maximum flotation price of 300p a share. "Hindsight is a wonderful thing" has become the favourite cri de coeur of Cable and Fallon whenever they are asked difficult questions about this disastrous sale. It was not hindsight that their department lacked, it was foresight. And for that they should accept full responsibility. |