Thursday, May 01, 2014 

How privatisation works.

1. Deciding Royal Mail cannot stay in public ownership as it needs access to private capital, the government seeks the advice of investment banks and other masters of the universe on selling off the Queen's head.  Most of these institutions said shares in Royal Mail should not be sold for less than 300p.  The one dissenting voice was Lazard & Co, the corporate advisory arm of Lazard Asset Management.  They advised shares should instead be sold at a range of between 212 and 262p, and repeated this sentiment even when it was apparent that the business could have been bought outright by small investors, with the public offering massively oversubscribed.  Despite the government setting the cost at 330p a share, Lazard & Co are paid £1.5 million for their help.

2. The government decides to provide "priority" access to the shares to 16 investors on the proviso they are to hold on to them in the longer term.  Among those lucky enough to be chosen for this privilege were Lansdowne, a decision clearly not based on how the co-founder of the firm has donated £700,000 to the Conservatives, or how Peter Davies, the co-head of developmental strategy, was a certain George Osborne's best man.  Also included were Lazard Asset Management, who bought 6m shares at 330p.

3. The priority investors almost completely ignore the gentlemen's agreement and join in the bonanza when the shares go on sale.  By January of this year only 12% of the shares were still held by them.  Among those making a killing, albeit for their clients and not themselves, making it perfectly all right, was Lazard Asset Management, selling their shares less than 48 hours after they went on sale, generating a profit of £8.4m.

4. The chief executive of Lazard & Co denies any wrongdoing or conflict or interest in front of the Public Accounts Committee, despite admitting he knew that Lazard Asset Management had been allocated the shares as there was a "Chinese wall" in place between the two different arms.  The government also refuses to accept it could have handled the sale better, with David Cameron continuing to insist the sale was a great success, regardless of how pricing the shares higher could have brought in anything up to a further £750m.

5. Shares in Royal Mail closed today at 538p.

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5/01/2014 09:46:00 pm | |

Wednesday, April 02, 2014 

£750m? Who needs that?

No taxation without representation.  It's one of the most basic tenets of parliamentary democracy, although the cynical, myself included, will point out that when you have what is still in most places a two-party system, plenty of people do go unrepresented.  Still, it's a principle that is as powerful now as it was 250 years ago.  By the same token, when the government of the day is seeking to massively cut spending and is doing so through squeezing the poorest until the pips squeak, the very least you can expect is it will seek the highest possible return on any publicly owned business it sells off.  According to the National Audit Office, at the very top estimate, the privatisation of Royal Mail could have brought in an extra £750m.

The reasons for why the government decided to sell shares at 330p are wearingly familiar.  Seeking the advice of a range of investment banks, most prominently Lazard but also Goldman "vampire squid" Sachs, Barclays and Merrill Lynch as well as other hangers-on, none of their analysts suggested the shares were worth less than 300p.  Despite this, Lazard's advice was that shares should be offered at between 212 to 262p, and when the government wavered at the last moment over whether it should up the price to 350p, having apparently realised how they were likely to be oversubscribed, Lazard advised against.  The government's error, if we're being charitable enough to describe it as such, was compounded further by giving priority access to 16 "long-term" investors, on the proviso that they be just that. Predictably enough most of these pension funds, not quite believing their luck, quickly disposed of their shares and cashed the easiest profit they're ever likely to make. As Chuka Umunna had it, the same spivs and speculators Vince Cable once denounced have made him and his department look like utter fools.

To give the government the benefit of the doubt, we can't know if the shares would have sold had they been priced at the 455p they ended up at after the first day's trading and so provided the extra £750 million the NAO points towards. Even if we halve it though, £375m is hardly an inconsiderable amount. It's also not as if Cable is a dilettante with little in the way of business experience; he was Shell's chief economic adviser for two years, for goodness sake.

Or maybe that's the point. When you seek the advice of asset strippers and tax avoiders extraordinaire, why on earth would they suddenly decide to go against their very nature?  Besides, the entire sale was predicated on the false claim that Royal Mail could only survive if it was able to have access to private capital, despite the government being able to borrow far cheaper than any company.  As the Economist pointed out at the time, listing Royal Mail publicly was asking for exactly the sort of short-termism we've seen.  All Cable was worried about was the sale failing, despite it becoming glaringly obvious it was never going to when the public on their own requested enough shares to buy it outright without the stock market getting a look in.  Cable also insists that the share price is inflated at its current 563p; it might well be, but that's not an excuse for selling on the cheap when market exuberance could have been taken advantage of.

Not that there's anything to suggest Labour would have done a better job.  For those like me just a little tired of those who in hindsight bang on about Gordon Brown selling off our gold reserves, there's the more relevant privatisation of Qinetiq, also criticised by the NAO and defended in almost exactly the same terms by the ministers of the day as flogging Royal Mail has been.  Both we're meant to believe have been great successes, bringing in millions and billions for the taxpayer respectively.  We could have gotten more, but we should be glad it all went smoothly rather than complain of what might have been.  Little things like how £360m is the amount of savings projected from the bedroom tax for instance, a policy causing complete and utter misery, something that could have been covered by the sale won't worry the dunces of Downing Street as it was never about preventing cuts elsewhere.  A publicly owned potential liability has been got rid of, the City was most pleased, and a handy £2bn was brought in.  That's all that mattered.  As for whether the service declines, as already seems to be happening, or whether it could have been done better, that's for a future government to worry about.  Few are going to base their vote on selling the Queen's head.  And thus the orthodoxy of the past 30 years remains unchallenged.

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4/02/2014 11:56:00 pm | |

Tuesday, October 22, 2013 

The legacy of past failures.

Yesterday's announcement that the government has struck a deal with EDF Energy and China General Nuclear to build a new reactor at Hinkley Point was hardly a surprise.  Apart from the bargaining, which had been going on for some time, the last cog in the wheel and tip-off as to what to expect was the Liberal Democrats voting at their conference to turn their previous opposition to nuclear power on its head.  As energy secretary, Ed Davey had the privilege of presenting the pact to parliament (alliteration, eh?), lightly glossing over that as recently as 2006 he had been completely against new nukes, saying "people don't want nuclear".

We shouldn't though be too hard on the Lib Dems.  When the facts change, you should change position, and as much as it's usually a bad sign when all three parties support something, on this occasion investment in nuclear energy, alongside renewables, is almost certainly the right policy.  If we're to keep climate change to below the point at which increases in temperature will cause catastrophic change to the weather and the planet, and keep the lights on, a mix of the two is almost the only way to go.  Greens and some of those on the left have, as Mark Lynas and George Monbiot argued repeatedly, completely overstated the dangers of nuclear power or see the issue through the prism of weapons rather than as a non-carbon source of energy that is always on.  I write this having voted Green at the last general election, as well as at every European parliament vote since I turned 18.  Chernobyl and Fukushima were and are disasters, it's true, but both were the result of either human mistakes or failures in construction and location.  The reactor planned for Hinkley Point C will be of the third generation EPR design, similar to the ones being built in Finland (behind time and over budget) and China, and so won't be an integral fast reactor, which has the potential to deal with the problem of the left over waste which we are also yet to solve.

The problems with the deal aren't with building the new nukes, which will happen, it's with the details.  The agreement with EDF and CGN is essentially yet another private finance initiative, or as the Graun puts it in this case, a foreign finance initiative.  The coalition (and industry) that tells Ed Miliband and Labour they can't freeze energy prices for 20 months can tell foreign investors the base rate they'll be paid for the energy to be generated for 35 years, 10 years longer than Mark Lynas thought would be the basis for the deal.  As Damian Carrington also notes, the £92.50 per megawatt hour figure (£89.50 per MWh if EDF also goes ahead with another reactor at Sizewell) is subject to change, and not set in stone.  Despite already being double the current price, it could potentially go far higher, or indeed, although considering the way things have been going for a long time now it's extremely unlikely, lower.  This might be about the same subsidy as wind is currently receiving, but that's expected to decrease as the years pass.  Much as Caroline Lucas might be wrong in opposing nuclear full stop, she's right that the deal should be urgently reviewed by the National Audit Office to see whether or not this is a stitch-up we'll all be contributing to for decades to come.

Second is the irony, or rather humiliation, in presenting this as a triumph for the country when the deal means we'll be paying the French and Chinese governments to do a job we were almost the first to finesse (although the near disaster at Windscale, later renamed Sellafield, is almost always brushed over if mentioned at all).  North Sea gas and oil played a role, but the wholesale privatisation of the Central Electricity Generating Board, rather than keeping a majority stake as the French have with EDF meant that relying on others rather than ourselves was always going to be the case.  The projection is the build at Hinkley Point will create around 25,000 jobs, but as for how many of those will be skilled British jobs, or of the preparing the site variety remains to be seen.  If 57% of the jobs are to be with British contractors as a way of restarting expertise in the industry, then great, it's just to be believed when we see it.

Coming as this does as three of the big six energy companies have announced triple the inflation rate increases in prices, here's another thought to savour.  Those green energy subsidies that make up some of the rise are soon to be added to by the agreed subsidy for the new nukes. As James Meek put it in his London Review of Books piece from last year, this is:


Effectively the French government ... buying the right to tax British electricity customers through their electricity bills; to use British money and British sites to finance a world showcase for unproven French nuclear technology. And because the hidden taxes in electricity bills take no account of people’s ability to pay, the poorer you are, the bigger contribution you make to the programme.

Thanks to the legacy of privatisation, the Tory party that today wants to renegotiate our relationship with Europe has surprisingly few qualms about leaving the responsibility for keeping the lights on to the perfidious, completely signed up to the EU project French state.  The contradictions are all but unending.

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10/22/2013 10:10:00 pm | |

Thursday, January 03, 2008 

Scum-watch: Gormless idiocy over Network Rail.

Startlingly fact free garbage in today's Scum says:

Brutish Rail

WHEN John Prescott renationalised the railways, he promised a superb new integrated transport service. We assumed he meant clean, affordable, punctual trains.

What on earth is the Sun talking about? The railways have most certainly not been "renationalised"; only Railtrack, which owned the lines and the stations, not the trains, was taken back "in house" with the creation of Network Rail. Secondly, it was also nothing to do with John Prescott: it was the work of Stephen Byers, then transport secretary.

Billions of pounds later, passengers travel in shabby squalor, plagued by delays and cancellations or are left high and dry as networks close down for days at a stretch.

And to add insult to injury, we are paying through the nose for the privilege in ever higher fares.


The former of which is the work of the private franchisees, not Network Rail. The government only has control over how much the saver tickets can be raised by, not the peak-time singles.

Thanks again, John.

Thanks again to the Tories and the insanity of privatising the railways in the first place. If I was conspiratorially minded, I wonder if the Scum is blaming John Prescott rather than Byers because of its sympathy towards his Blairite politics. I'm more inclined to believe however that whichever idiot wrote this leader column simply doesn't have a clue.

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1/03/2008 08:09:00 pm | |

Monday, November 19, 2007 

Scum-watch: We know better than the workers.

Today's Scum is highly annoyed about Brown and Alan Johnson daring to decide not to hand over yet more vast sums to private health companies who were getting paid for operations and treatments regardless of whether or not they actually were used or not:

GORDON Brown was slammed last night for blowing £100million of taxpayers’ cash scrapping Tony Blair’s NHS reforms.

The PM could have built two children’s hospitals, or hired 4,000 nurses with the cash.

Instead, he has used it to compensate private health firms after axing their NHS contracts.


Instead of leveling the blame with Blair and Johnson's predecessors for drawing up contracts which paid a lump sum to the private sector firms rather than on the actual amount of work they did, Brown gets in the neck. £100million is a disgraceful amount of compensation to pay to firms which must be laughing all the way to bank with the way the NHS works; they build hospitals with fewer beds than the ones they're replacing, and then have years' of payments still to look forward to under the hugely wasteful private finance initiative, and when they get their contracts canceled because they're not treating enough patients they still get paid! The blame however lies with Blair and his ideological fervour for marketised solutions which has imposed such madness on the NHS.

The Scum's leader knows who's really to blame though, and would you believe it, it's the unions:

AXEING private contracts for the NHS is foolish.

Gordon Brown should think again.

The NHS needs competition to drive up standards. It needs private firms to perform the ops and services so waiting lists can be cut.


This is nonsense. Almost all of the centres being scrapped were not seeing the volume of work they expected to; patients were voting with their feet through the choice system to go with the state rather than the private sector, even if it meant a slightly longer wait. As Alan Johnson set out, one of the services in the West Midlands had a take-up of 5%. Continuing to pay for 100% take-up when it was only doing 5% is economically insane.

 Spending £100million to compensate companies for tearing up their contracts is shocking.

True, but so is continuing to pay private health firms in full when their centres were sitting idle, especially when their introduction in the first place was completely unnecessary.

And it’s a disgusting price to pay for appeasing the unions, who only care about protecting jobs.

Christ, unions caring about protecting jobs? What's next? The police only caring about catching criminals? Rupert Murdoch only caring about his own self-interest? In any case, the unions don't just care about protecting jobs; they also care about how the NHS is little by little being broken up, being readied for inevitable full-scale privatisation whenever the government decides that a free at the point of use service is no longer "economically sustainable", as the treatment of Karen Reissmann demonstrates.

Mr Brown should ignore their selfish bleating.

And put patients’ lives first.


Quite right. The Sun and the CBI know better than the workers on the front line what's best for the NHS, and yet more private snouts in the public trough is the only way forward.

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11/19/2007 06:01:00 pm | |

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