Royal Mail

Lord Razzall Excerpts

Wednesday 10th July 2013 Lords Chamber

[Viscount Younger of Leckie]

The noble Lord may not be surprised to hear that I do not agree with his assessment. It is true, however, that since 2006, the fall in letter volumes has been as much as 25%. The market is changing and we need to keep ahead of it. I would remind the House again that Germany and Belgium are ahead of the game. The injection of private capital into Royal Mail will help with the change, but there is a double benefit in that, through legislation, the universal offering remains strong. It is set in stone, which is a very important point to make.

[Lord Razzall]

My Lords, as the noble Viscount will be aware, we on the Liberal Democrat Benches are very much in support of this. Indeed, the Liberal Democrat element in the coalition, starting with Ed Davey who was the responsible Minister in the early days of the coalition, are absolutely delighted to see this culmination now. As the noble Viscount rightly said, it is very nice to see the noble Lord, Lord Mandelson, in his place because it was he who started this process many years ago despite considerable opposition from his own side, which appears to continue.

Perhaps I may put three questions to the Minister. The noble Lord, Lord Young, raised a perfectly valid point when he asked whether the Government are satisfied—have they had advice from whoever is running the IPO for them, who presumably will have been taking soundings from the institutional shareholders who they are expecting to invest—that those shareholders will be prepared to put up the necessary capital to invest in Royal Mail, which was the whole purpose of the privatisation exercise in the first place? Are the Government satisfied that this structure will provide the necessary capital to continue the modernisation process in Royal Mail that we all know lies behind the whole privatisation drive?

Secondly—this is an important point—the Government have chosen to take the IPO route, which I must say was slightly surprising to some of us. We had assumed that the more likely result would be either some form of trade sale or a private sale. Can the Minister confirm that if the IPO was to fail for whatever reason—particularly listening to the noises that are coming from the trade union movement at the moment—the Government will continue the process of selling off shares in Royal Mail? If that happens, it is probable that the buyers would be a private equity group, who are less likely to be sympathetic to the interests of the trade union movement than would be the case under an IPO.

Thirdly, perhaps I may reflect for a moment on the 10% of shares that are going to the employees. As the noble Viscount will know, the Liberal Democrat element of the coalition has pressed for this strongly right from the start. Can he confirm the numbers that have appeared in the newspapers recently of the value of this to the employees of Royal Mail? The numbers that I have seen show that the average Royal Mail employee is being paid approximately £19,500 per annum, and on the likely price of an IPO, every employee will receive shares worth about £1,900 to £2,000. If those numbers are correct, that is clearly a significant sum to be put into the hands of the well deserving employees of Royal Mail.

[Viscount Younger of Leckie]

In answer to my noble friend’s first question about the appetite of shareholders, the indications are that there is clear interest in purchasing shares in Royal Mail. I would not want to go further, because it is not my role to speak on behalf of investors, but my noble friend makes a very good point. The most important thing for Royal Mail is to have flexible access to capital to allow it to innovate and capture market opportunities, such as the strong growth in the parcel market driven by online shopping, as I mentioned earlier. That is what an IPO will deliver for Royal Mail. It should not have to come cap in hand to Government and compete with schools and hospitals when it needs to innovate or commit to future investment.

The second question concerns the IPO route as opposed to other methods. It is true to say that, having got to this point over a good number of years, the IPO route was clearly the preferred route. I am certain that other options were looked at. My noble friend’s question was, if the IPO route were to fail, would other methods be used? I do not wish to be drawn on that or to speculate, only to say that it is our firm belief that the IPO route is the right route and that is the route that we will be following.

The final question concerned employees. I am delighted to hear that my noble friend is very much in favour of giving 10% of shares free to employees. I will not be drawn on the actual valuation, because a prospectus will be produced in due course, which will set out the terms of the IPO. The valuation will, of course, depend on investor demand and market conditions at the time. What my noble friend has read in the papers, as he will probably know, is pure speculation.