Royal Mail sell-off: taxpayer short changed…according to Vince Cable

The taxpayer may have been shortchanged to the tune of hundreds of millions of pounds by the sale of the Royal Mail, according to markers laid down by Vince Cable back in October.

Royal Mail-JPEG

The taxpayer may have been shortchanged to the tune of hundreds of millions of pounds by the sale of the Royal Mail, according to markers laid down by Vince Cable back in October.

The government had previously warned that it was too early to make a judgement as to whether shares in the company have been flogged too cheaply.

However back in October business secretary Vince Cable claimed that judgements about the Royal Mail sell off could be made after three months had passed.

Interviewed by the Today Programme on 11 October, Mr Cable said:

“You get an enormous amount of froth and speculation in the aftermath of a big IPO of this kind. It is of absolutely no significance whatever. What matters is where the price eventually settles and if we look back at this in three months’, six months’ time, or indeed years to come, that’s what we’re really interested in.”

On Wednesday, three months after the business secretary’s comments, Royal Mail’s share price closed at 562p – more than 70 per cent higher than the 330p at which the government sold the taxpayer’s stake in the company.

The taxpayer made around £2bn from the sell off of the company. However if the shares had been sold at 610p, the price mega banks Goldman Sachs believes the price will settle at in a year’s time, it is thought the exchequer would have brought in around £3.66bn.

In other words, taxpayers may have been short-changed to the sum of hundreds of millions of pounds because of the government undervaluing of the company.

In October shadow business secretary Chuka Umunna wrote to the National Audit Office and the chair of the Public Accounts Committee highlighting concerns that taxpayers could be short-changed.

Commenting on the news, Mr Umunna called the sell off a “botched privatisation”.

“On the day the Royal Mail fire sale went ahead Vince Cable was clear that the Tory-led Government should be judged on the basis of the price of Royal Mail shares after three months.

“Three months later, the Business Secretary’s dismissal of the sharp rise in share price as ‘froth’ has been demolished and increasingly it looks like the taxpayer has been left short changed at a time when services are being cut and families are struggling with David Cameron’s cost of living crisis.

“We know that Vince Cable considered, then rejected, the option of floating Royal Mail at a higher price which would have brought in more cash for taxpayers. He still has serious outstanding questions to answer on the price he could have received three months ago in respect of what increasingly looks like a botched privatisation.”

5 Responses to “Royal Mail sell-off: taxpayer short changed…according to Vince Cable”

  1. Jignesh Sanghvi

    I believe the above article is not so accurate and is actually misinterpretation of Vince Cable’s statement. Tories priced Royal Mail at 330p on the value of the business and the closing price (=market value) of 562p is actually based on speculation. Someone with even half the financial knowledge would know that the financial markets run on expectations and speculations, NOT on the real value of the company!

  2. Hawkeye

    Regardless of the “value”, the fact remains that on the day of flotation, people were willing to pay much more than the shares were priced at. Ergo, they were under-priced. Vince Cable was wrong when he made this statement… the Government should have sold the shares for the maximum amount the market would buy them at… if the market over-priced the shares, then that’s the market’s problem not the Government’s. To imply that the Government (should have) sold them at a fair value is ridiculous… they should have been sold for the maximum amount of money possible.

    Anyone “with even half the financial knowledge” would know that a company is VALUED to include some element based on expectation and speculation. The “value” of Royal Mail today is ultimately whatever the stock market says it is, regardless of how much speculation has been factored in.

  3. treborc1

    OK it was sold to low, sadly I would have thought labour’s argument would have been the sale was wrong, labour Tory, Tory labour the difference, well that’s it I cannot see it.

  4. blarg1987

    To expand on hawkeye’s point a little, the Goverment did a consultation with many large investment firms whi said they would not pay more then £3.30 a share. However when it was floated they were buying off private holders at over £5.00 per share.

    It was a botched privatisation, as if they wanted real value for money then they would have made these investment firms sign a contract stating that if they wern’t willing to pay more then £3.30 a share then they can not buy any shares over that value, if they did then they must refund the tax payer the difference.

    I do hope that this is a master plan by Vince Cable to show how goverment can’t manage privtisation so if the coalition or tories plan it with the NHS he can say well you were so sccesful with Royal mail wern’t you ergo a political climb down or vote of no confidence into the goverment.

  5. guest

    Unfortunately it no longer requires a simple majority (over 50%) to carry a motion of no confidence. Shortly after taking power the Tories with the aid of the lib dems raised the required majority to something like 66%. So labour have no chance of carrying the day while the lib dem remain in coalition.

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