Postal Services Bill

Baroness Kramer Excerpts

Tuesday 24th May 2011 Lords Chamber

[Lord Young of Norwood Green]

My Lords, Amendment 2 addresses a concern that, in the pursuit of other no doubt laudable objectives, attention may be diverted from getting the right valuation of Royal Mail and ensuring that the taxpayer is not short-changed. The noble Baroness, Lady Kramer, drawing on considerable professional banking experience, reminded us of her wicked past, although I doubt it was enough for a super-injunction to be called for. She said that it was,

“good to have the warning that past sales of assets have not really achieved the maximum price that could have been achieved under more effective disposal mechanisms. The Government tend to be quite poor at procurement of almost anything, including a price for the sale of assets”.—[Official Report, 14/3/11; col. 103.]

Those are wise words, based on experience.

There is a compelling case to show that in the heyday of privatisation, the 1980s and 1990s, privatised companies were consistently sold at too low a price. The noble Lord, Lord Lea, on the basis of his thorough research, pointed out to the House that it has been estimated that for 1986 alone the average share issue premium on major share issues was 7 per cent. On privatisation issues the average premium on the first day of trading was 77 per cent. One of the reasons for this undervaluation is that it is extremely difficult to place an accurate valuation on a company in which no shares have been traded recently. That would certainly be the case with Royal Mail. It is not uncommon, when a public body has kept records for other purposes, for its inventory not to be perfectly up to date for the purposes of a sale.

Ministers have previously warned that they do not want to publish the valuation of the company for fear of affecting the sale price adversely. In other words, they think they might undervalue the assets, compared with what someone is willing to pay. They have also been unwilling to guarantee that there will be an independent valuation, or to share the valuation prior to the sale with the Public Accounts Committee in another place. They have indicated that there will be an internal confidential valuation and that the accounting officer of the Department for Business, Innovation and Skills will be obliged to ensure value for money overall. That might be reassuring were it not for the fact that similar obligations also applied in the palpable underselling of public corporations in the 1980s and 1990s.

This amendment does not seek the publication of any figure for valuation. It does not even ask for a figure to be shared with the Public Accounts Committee in advance. It simply provides for the Government, at the time of their report to Parliament—already promised in Clause 2—and prior to the sale of Royal Mail, to make clear the criteria for and method of their valuation. That does not mean the valuation itself but at least the criteria and method of valuation. I hope the Minister will be able to give some indication of a willingness to present this or similar information, if not to Parliament as a whole then to the Public Accounts Committee.

Could the Minister also address a question raised by the coalition review of its year in office? It made reference to the timescale for European state aid clearance, which seems to have been extended by six months to May 2012. That conflicts with previous statements that this might be achieved in the winter of this year. I would welcome some reassurance—clarification might be a better word—on that.

We are pleased overall to help improve the safeguards in the Bill; to safeguard the viability of Royal Mail; to strengthen regulation transparency and accountability to Parliament; to strengthen the safeguards to the universal service and the post office network; and to ensure that we get the best possible value for public money in the event of a sale. I beg to move.

[Baroness Kramer]

My Lords, in my defence, although I continue to think that the Government do not have a very good track record in valuing companies that they put forward for sale, I did not think that the Floor of this House would be any more effective in coming to an appropriate valuation either. Therefore, I support the Government in this instance.

[Lord Whitty]

My Lords, I support this amendment. The Government have to recognise that despite the hours which this House and another place have spent on this Bill and the very protracted proceedings, to which the noble Baroness replied in a very courteous and often very helpful way, the central fact of this piece of legislation, which deals with one of our national institutions and an essential part of our national infrastructure, is that nobody—not the Government, employees, customers, competitors or potential investors —knows what Royal Mail will look like once this legislation is passed. We do not know who the prospective buyers are. We do not know what mechanism the Government are intending to use for the sale, and therefore we do not know who will call the shots in Royal Mail’s future decisions once the privatisation is complete.

In those circumstances it is not entirely surprising that the basis for valuation causes concern. This is what lies behind my noble friend’s amendment. He is right that, historically, assets were sold off at a price that proved to be less than their value. However, in the 1980s, at least it was clear how we were going to sell them, which were going to IPOs and which were to be sold directly to particular bidders. This is not the case here. It is therefore even more important that this great national institution is not passed to an unknown process of sell-off, or to an unknown buyer, without Parliament and the public as a whole being confident about the basis on which that valuation is carried out.

As my noble friend has said, the amendment does not say that we should publish a valuation and therefore undermine the Government’s negotiating position, but it does say that we ought to know the criteria in the Government’s mind on which the valuation is based. This is a fairly minimal requirement. I hope that the Government, who are determined on this course, will at least have the self-confidence to make the public feel confident that this great asset will not be seriously undervalued. I hope that my noble friend’s modest proposal would go some way to achieving that objective if at this late stage the Government were to concede that such a measure should be included in the Bill.