News the government has sold its remaining 14 per cent stake in Royal Mail to institutional and professional investors goes against the clear popularity and demand for retail offerings in privatisations.
Registrations of interest for next year’s Lloyds Banking Group share offer are already in the hundreds of thousands. It would seem wild horses couldn’t drag people away from this share offer.
There is no denying that a sale of shares to institutions is quicker and easier than a retail offering and likely, in the short term, to provide better value for the taxpayer. However there is a wider and longer term issue at stake: that of encouraging investment.
Investment supports the wealth creators, the hard-working builders, professional people, entrepreneurs, creators, developers, investors, company owners and managers.
In our recent history, our entrepreneurial society has been one of our strengths. These people improve the economic fabric of Britain, attract cash into the country by exporting their services, provide employment and learning for the next generation, and their endeavours creates tax revenue.
However they rely on a flow of investment from our pension funds, investment funds, Isas and savings.
Investment is also good for the individual. Despite changes and upgrades to the state pension system from next April, the proposed £155 per week is, for most people, insufficient to provide long term financial security, making the need for individuals to save and invest for their future nothing short of essential.
Yet the UK public are significantly under-invested, with just 20 per cent of the adult population holding a risk asset, compared to nearly 60 per cent in the US.
How do we get people to invest? Well the evidence is clear: high profile public offerings are an effective way to get first-time investors to invest for their future.
As an example, when Royal Mail first floated 20 per cent of its shares in 2013, more than a quarter of those who applied for shares said it was their first stock market investment. In a recent survey of one stockbroker’s clients 38 per cent said their first share was purchased via a flotation.
Encouraging these first steps into responsible investment is vital and helps to promote aspiration. Building savings and wealth must be cool – because being bailed out or not having enough money to live on in retirement is definitely not.
This share sale of Royal Mail is a missed opportunity to support wider wealth creation and encourage people to invest for their future financial security. Let’s hope a longer term view is taken when the time comes to return RBS to private ownership.