Cable grilled over Royal Mail sale
Government ministers today defended the controversial privatisation of Royal Mail amid questions over whether they were "conned" over the share price.
Business Secretary Vince Cable and Business Minister Michael Fallon faced a grilling by MPs over the setting of the share price, which soared from its opening level of 330p within minutes of trading last month.
The coalition has been accused of selling the company too cheaply after shares initially increased by more than a third and broke through the 500p mark within a week.
Mr Cable told the Business Select Committee that he "categorically" rejected claims that taxpayers had lost out, insisting it would take time for the share price to settle down.
He was questioned closely by committee chairman Adrian Bailey (Labour, West Bromwich West) on the advice given to the Government before the share price was set by banks which later traded shares at the higher level.
"It begs the question, what was their motivation? Were they conning you, putting it bluntly?"
Mark Russell, chief executive of the Shareholder Executive, replied that he did not believe they were, adding he was satisfied the advice being given on the share price was "proper, independent" advice.
Mr Bailey said he thought Mr Russell was showing a "degree of gullibility"
Mr Cable stuck by his previous description of the early gains as "froth" and said the true value of the shares would not emerge for months.
The minister also took issue with any suggestion that banks had acted illegally, and told the MPs that the sale was good for the taxpayer and for the future of the six day a week delivery service offered by the Royal Mail.
"This has been a very professional, well organised and successful operation," he said.
Mr Fallon said people will look back on the sale as a success, giving the Royal Mail access to funds and minimising the risk of taxpayers having to "bail out" the company in the future.
"We could not have got a higher price for the 600 million shares. That was made clear to us by our advisers."
Some potential investors were already "walking away" in the run up to the share price being settled, he claimed.
Just before the committee hearing, Royal Mail revealed operating profits nearly doubled to £283 million for the six months to September 29 from £144 million a year earlier, although figures were boosted by £95 million after a VAT credit and lower-than-expected costs of its overhaul programme.
The parcels business saw sales volumes growth grind to a halt as the summer heatwave slowed online purchases, while Royal Mail also said the threat of strike action had since cost it business parcel customers in its key Christmas quarter.
Unite, which represents managers, said the figure showed that Mr Cable "spectacularly duped" the taxpayer in allowing the 60% stake in the company to be sold off too cheaply.
Billy Hayes, general secretary of the Communication Workers Union, said: "These results are based on performance when Royal Mail was still in public ownership. The rise in profits is further proof that there was no need to privatise this successful company. A profitable, successful and well-loved institution was flogged on the cheap when these latest figures show it was healthy and in good hands. The Government's arguments continue to crumble."
Mr Cable said no decision had been made on whether to pay a multimillion-pound performance bonus to banks which advised the Government on the sell-off, adding it could take years before a judgment is made.
William Rucker, chief executive of Lazard, said the bank received a fee of £1.5 million for advising the Government on the privatisation.
The Business Secretary said he asked "very tough questions" of the advisers as the launch neared, asking if things could have been done differently.
"We interrogated them very closely about whether they were making the correct call."
Mr Cable said there would have been "considerable risks" in setting the initial share price higher, given the Government's intention of attracting long-term investors.
Mr Fallon said the advisers were challenged over the share price at a series of meetings, adding: "It became clear there was a point at which institutional investors would not invest ... and would walk away."
Mr Rucker said suggestions that the price could have been 20p higher would have led to a delay in the flotation, which would have been a risk, given the state of the United States economy at the time and the threat of a strike by Royal Mail workers.
"The risk was not worth it," he said.
Mr Fallon maintained that the Government was never given firm advice of increasing the share price by 20p, but concluded that the risks involved were too high.
"Our aim was to secure the six-day-a -week service. If we had overpriced this business, we could have seriously jeopardised the six-day-a-week service."
But Mr Bailey said it was now clear the Government was given advice that the shares could have opened 20p higher.
"What is the point of paying money to get advice, and then ignoring the advice?" asked the chairman, adding that the Government's assessment was "detrimental" to the interests of taxpayers.
Neither Mr Cable nor Mr Rucker would predict what will happen to the value of Royal Mail shares in the future.
Mr Bailey said this was because they knew it would remain at the current level of over 500p.
Shadow Business Secretary Chuka Umunna said: "Royal Mail's profits doubled in the first half of this year before privatisation, demolishing the Government's case for its fire sale of Royal Mail, which rests on a claim it couldn't succeed in public hands and needed to be privatised for investment to take place.
"Out of touch ministers, who will only stand up for a privileged few, have nationalised the debt of Royal Mail and privatised the profit.
"Vince Cable and David Cameron are in denial about the real concern that taxpayers have been left short changed to the tune of hundreds of millions of pounds by their botched Royal Mail privatisation, at a time when many are struggling with a cost of living crisis of the Government's making."