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The Guardian view on how Royal Mail was sold on the cheap The Guardian view on how Royal Mail was sold on the cheap
(3 days later)
A committee of MPs has run its ruler over the numbers and reached a conclusion on the Royal Mail sale – "the department underestimated the market value". In other words, a cheque that should have been written out to the taxpayer disappeared in the post.A committee of MPs has run its ruler over the numbers and reached a conclusion on the Royal Mail sale – "the department underestimated the market value". In other words, a cheque that should have been written out to the taxpayer disappeared in the post.
For a business secretary, Vince Cable, who has railed against casino capitalism, allowing a quick buck to be made at public expense is embarrassing. For a government defined by the claim that the community cannot afford the social protections of the past, the charge of showering investors with free money is shaming. This much is easy to say. But to avoid a rerun the next time a public asset is sold, the important question is why it happened. Was it simply bad luck – a reflection of the reality that share prices can go down as well as up? Or is there something awry with the way that the state sets about selling?For a business secretary, Vince Cable, who has railed against casino capitalism, allowing a quick buck to be made at public expense is embarrassing. For a government defined by the claim that the community cannot afford the social protections of the past, the charge of showering investors with free money is shaming. This much is easy to say. But to avoid a rerun the next time a public asset is sold, the important question is why it happened. Was it simply bad luck – a reflection of the reality that share prices can go down as well as up? Or is there something awry with the way that the state sets about selling?
Every bubble demonstrates that the market can misvalue firms, yet trying to price one in isolation from the herd is very tough. For anyone – whether a corporation or a department of state – flogging shares for which there is no established price involves a leap in the dark. This known unknown provides Mr Cable's best defence against the charge, levelled by official privatisation historian David Parker, that the Royal Mail sale represents the worst sell-off for the taxpayer in history.Every bubble demonstrates that the market can misvalue firms, yet trying to price one in isolation from the herd is very tough. For anyone – whether a corporation or a department of state – flogging shares for which there is no established price involves a leap in the dark. This known unknown provides Mr Cable's best defence against the charge, levelled by official privatisation historian David Parker, that the Royal Mail sale represents the worst sell-off for the taxpayer in history.
So was it mere misfortune? No. Whitehall could have sold a small slither of shares in the first instance so that a market price was established before it sold a bigger stake, but it wanted to offload a majority fast. While it is true that the day-one lift in value was sometimes higher during the notoriously under-priced sales of the Tell Sid years, back then subscribers bought shares in tranches, so some were purchased at higher prices later. The total windfall – up to £2.5bn, Professor Parker reckons – thus worked out proportionately bigger this time. So was it mere misfortune? No. Whitehall could have sold a small sliver of shares in the first instance so that a market price was established before it sold a bigger stake, but it wanted to offload a majority fast. While it is true that the day-one lift in value was sometimes higher during the notoriously under-priced sales of the Tell Sid years, back then subscribers bought shares in tranches, so some were purchased at higher prices later. The total windfall – up to £2.5bn, Professor Parker reckons – thus worked out proportionately bigger this time.
The stampede to sale reflects many things, including Whitehall's general itch to get things finished, and its obsession with flattering the deficit figures. But there are more specific biases too. Royal Mail shares are held through the government's "shareholder executive", a team of officials largely seconded from the sort of City institutions which do well out of privatisations. Having been bent on selling the Mail for years, the executive turned to Lazard, UBS and Goldman for advice about the price. They all said that investors could be put off by anything exceeding the £3.30 eventually charged. Well, one is tempted to say, they would, wouldn't they? Sadly, a British state that long ago gave up on the very possibility of public enterprise remains wide-eyed about the City.The stampede to sale reflects many things, including Whitehall's general itch to get things finished, and its obsession with flattering the deficit figures. But there are more specific biases too. Royal Mail shares are held through the government's "shareholder executive", a team of officials largely seconded from the sort of City institutions which do well out of privatisations. Having been bent on selling the Mail for years, the executive turned to Lazard, UBS and Goldman for advice about the price. They all said that investors could be put off by anything exceeding the £3.30 eventually charged. Well, one is tempted to say, they would, wouldn't they? Sadly, a British state that long ago gave up on the very possibility of public enterprise remains wide-eyed about the City.
• This article was amended on 14 July 2014 to correct "a small slither of shares" to "a small sliver of shares".