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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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