THE GOVERNMENT was too cautious and massively undervalued Royal Mail at the expense of taxpayers, the spending watchdog has said today, in a highly critical report into the £3.3bn sale of the postal operator.
In a damning verdict published this morning, the National Audit Office (NAO) concluded that Vince Cable’s department for business, innovation and skills (BIS) could have achieved better value for the taxpayer if it had prioritised competitive pricing over getting the deal completed on time.
The NAO launched an investigation after Royal Mail’s shares soared 38 per cent on their first day of trading in October, sparking fierce criticism that the company had been sold off too cheaply. Shares have remained 70 per cent above their initial offer price of 330p, closing at 563p yesterday.
“The department was very keen to achieve its objective of selling Royal Mail, and was successful in getting the company listed on the FTSE 100. Its approach, however, was marked by deep caution, the price of which was borne by the taxpayer,” said Amyas Morse, the head of the NAO.
The government raised £2bn from selling a 60 per cent stake in Royal Mail via an initial public offering (IPO). But the report argues that it should have held onto a bigger stake so that taxpayers could have benefited from the meteoric rise in its share price.
Cable, who has maintained that the price was right in light of the continued threat of strike action and economic risks in the run up to the IPO, hit back today. “Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale. The report concludes there was a real risk of a failed sale attached to pushing the price too high,” he said.
The watchdog also said in its report that BIS stuck with the lower valuation to keep 16 key long-term institutional investors on board. However, almost half of the shares allocated to these investors were sold “at a substantial profit” within weeks of the sale.
The report also criticised fees paid to financial advisers Lazard, whose £1.5m bill was not dependent on valuation, saying the incentives offered meant “the taxpayer interest was not clearly prioritised within the structure of the independent adviser’s role”.
“It is clear to me the department for business, innovation and skills undersold the taxpayer when it privatised Royal Mail,” said Margaret Hodge MP, who chairs of the public accounts committee.
“The fact the share price has increased by 72 per cent ... tells me the department had no clue what it was doing.”
Members of Cable’s department will be questioned by Hodge’s committee on 7 May.