Royal Mail

John Bercow Excerpts

Tuesday 1st April 2014 Commons Chamber

[Vince Cable]

The last thing I intend to do is apologise. What I do intend to do is refer to what the report actually said, as opposed to the spinning and froth that is being generated around it. Let me read again the report’s initial conclusion on value for money:

“By floating Royal Mail on the Stock Exchange the Department achieved its key objectives of introducing private capital and commercial disciplines. Given Royal Mail’s prospects and prudent initial capital structure it is now less likely that the taxpayer will have to provide public support for the universal postal service.”

That is what it actually said.

Let me address the criticisms, if that is what they were. The first was that the Department was cautious, but I would have thought that caution in this context had a lot to commend it. The reason the Department was cautious was the very real risk that the floatation could fail. The choice we faced was: had the floatation failed, it would have remained in public ownership and, despite the hon. Gentleman’s preference for keeping it in public ownership, the valuation placed on it continuing in public ownership was about £1 billion. That was not disputed by the National Audit Office. The alternative—the floatation which happened—resulted in a value for the taxpayer of £2 billion in cash and £1.5 billion in continued value of the retained sale. There was a choice between the £3.5 billion that resulted from the privatisation and the £1 billion had it failed, so it is absolutely right and sensible that we were cautious.

The hon. Gentleman made the point that there was a lack of flexibility in the initial public offering system. Indeed, the National Audit Office makes that point: there was a lack of flexibility. The question, therefore, is: were there any alternatives? Could this have been done in a different way? The Government could have eliminated the retail investors and had more flexibility over price at the time of sale, but as it happens one of the successes of the privatisation is the fact that 670,000 investors now have shares.

The other way of selling Royal Mail would have been through a trade sale, and of course we looked at that as an option. One of the reasons we did not pursue it was that we looked at the history of privatisation under the Labour Government. and there was one very good example of what happens when a trade sale is pursued: I refer the hon. Gentleman to the NAO report on the privatisation of QinetiQ. What happens with the supposed flexibility of a trade sale—[Interruption.]

[Mr Speaker]

Order. Mr Blenkinsop, before Christmas I specifically advised you to take up yoga or some other similarly therapeutic and calming activity. Moreover, your brother very wisely purchased you a book on the subject. It is evident to me that you have not yet read it.

[Vince Cable]

What happened in that trade sale was that a company with an equity value at sale of £125 million was eventually valued at £1.3 billion—10 times what the Labour Government sold it for. That is the alternative model with which we were confronted.

Let me address specifically the issue of the long-term institutional investors. The hon. Gentleman is absolutely right to say that one of the key objectives, to which I attach particular importance, was ensuring that the long-term institutional investor base was strong, and indeed it is. When the hon. Gentleman looks at the breakdown of share ownership, he will see that between two thirds and 70% of the shares held as a result of the IPO are held by those long-term institutional investors. When we put that with the Government’s retained shares and those of the workers, we see a very large majority of investors who are committed to the long-term strength of the company. One does have to ask the question: why did some of the long-term institutional investors sell? Some bought, some sold. The reason they sold was that they considered the share price after sale was overvalued. It was an obvious market reaction, and that was the consequence. None the less, having a long-term investor base remains a basic objective, and we have achieved that fundamental objective.

Let me turn to the issue of the valuation, to which so much importance is attached. It should be blindingly obvious, although I do not think it is to the Opposition, that trying to sell 600 million shares at one go is a fundamentally different proposition from the 2 million to 3 million sold in daily trading, which explains why the price has varied since the flotation.

I have said and I continue to say that there is a great deal of froth in the valuation of this and other shares—that is how equity markets operate—and this particular share is surrounded by a great deal of volatility. There are two main reasons for that. The first is a great deal of uncertainty over industrial relations in a company that has had a very troubled industrial relations history. It is worth pointing out—I do not know whether the hon. Gentleman noticed—that the mere mention last week of a Unite strike took the stock price down by 20p. That was the context in which we had to make the sale. The second key point—[Interruption.] I am trying to respond to the hon. Gentleman’s points. [Interruption.]

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[Mr Speaker]

Order. The Secretary of State must be heard. This is very important. [Interruption.] Well, people must make their own assessment on both sides of the House—such is the nature of political debate—but the Secretary of State must be heard.

[Vince Cable]

Looking at the volatility of shares, this company is exposed to a considerable level of competition, as a result of actions of regulators beyond the Government’s control. The estimate has been made—I think that I cited this to the Business, Innovation and Skills Committee —that a 1% fall in sales is the equivalent of a 17% fall in profits for this company. We hope, and we have every reason to be optimistic, that with the very good management of the company, the co-operation of the work force and the investment that privatisation now makes possible we shall have a positive outcome in terms of competitiveness, but there is a great deal of uncertainty, which lies behind the volatility of the shares.

We in the Government have been criticised, not least by the Select Committee, over the past few months because we failed to take account of the estimates made by the banks that were bidding for business. One section of the NAO report—the hon. Gentleman has clearly not read it—completely vindicates the Government’s decision to ignore those estimates as completely worthless. They were touting for business, the estimates had no value whatever and we were quite correct to ignore them. Much of the propaganda that he and his colleagues have developed over the past few years has proved to be completely beside the point.

Let me make a final point on valuation. The hon. Gentleman gave us a lecture on the dangers of undervaluing public assets, but let me just quote to him his Government’s experience of the difficult art of valuing assets. The former Prime Minister, the right hon. Member for Kirkcaldy and Cowdenbeath (Mr Brown), sold large quantities of gold at between $250 and $300 an ounce, but the price subsequently increased to more than $1,500—five times the original value. That is the nature of the highly volatile markets in which we have to operate.

The NAO report reached the important conclusion that we had successfully achieved our objectives. Under this Government, we have taken a loss-making public enterprise and turned it into a highly successful, respected public company.

[Several hon. Members]

rose—

[Mr Speaker]

Order. There is much interest in this subject that I am keen to accommodate, but some pithiness from Back and Front Benchers alike would be appreciated. [Interruption.] Order. The Secretary of State was sorely tested by a lot of very noisy heckling. It is always a pleasure to listen to the right hon. Gentleman, and I know that he will take it in the right spirit if I gently point out to him that his response to the shadow Secretary of State was four times longer than his original statement. A degree of economy would help us all, and I feel certain that this exercise will be led by the illustrious figure of Mr Brian Binley.

[Mr Brian Binley (Northampton South) (Con)]

The evidence that the Select Committee heard on this issue showed that the prime movers in the bid, as contracted by the Department, had a range of up to £3.30. They confirmed to the Secretary of the State that no bidders would go above that level. That proved to be totally untrue. Their colleagues who helped build the book made a killing at the expense of the taxpayer. Can we be assured that such a debacle will not happen again, that the system will be changed, and that there will be a fairer deal for the taxpayer than we have got from this unethical and, quite frankly, immoral procedure?

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[Vince Cable]

Sorry, I did not hear the hon. Gentleman.

[Mr Speaker]

Order. The Secretary of State did not hear the hon. Gentleman. I did, but perhaps he can put his question again.

[Steve McCabe]

I will try to say it louder, Mr Speaker. I asked if the Secretary of State regarded the sale as a personal political triumph.

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[Vince Cable]

The hon. Gentleman seems to be one of the few Opposition Members to have actually read the report, and I commend him for that. There were, of course, other companies and priority investors who invested considerably more. Indeed, I think that one has increased its stake by well over 100%.

While I am on my feet—I think this is the last question —may I just correct a slip of the tongue where I referred to the regulation applying to the first class stamp? Obviously, it applies to the second class stamp.

[Mr Speaker]

I am pleased to say to the Secretary of State that the pace quickened and we got through 40 Members in 37 minutes of exclusively Back-Bench time, so I am deeply grateful to the right hon. Gentleman and to colleagues.

Bill Presented

National Parks (Governance)

Presentation and First Reading (Standing Order No. 57)

Tim Farron, supported by Roger Williams, Dr Julian Lewis and John Woodcock, presented a Bill to give powers to the Secretary of State to provide for elections to be held to the governing boards of National Parks on a pilot basis; and for connected purposes.

Bill read the First time; to be read a Second time on Friday 6 June, and to be printed (Bill 194).