No matter at what price the Royal Mail was sold for people would be complaining.
The UK had no choice but to privatise the Royal Mail under rules set down by the European Commission’s EU Postal Services Directive. No choice at all. Nevertheless, there will be lots of hand-wringing over whether or not we should have complied with the Directive.
The Royal Mail, along with other institutions like the BBC and the Met Office are considered by many to be ‘national treasures’ and need to be preserved ‘for the good of the nation’. And as such, we have generated romantic visions of the Postmaster being at the centre of the community, and of the noble postie braving blizzards to deliver vital letters and packages.
Society now considers a postal service a universal right and not a privilege. Since when did next-day delivery become a basic human right? And since when was a state obliged to provide a postal service to meet such a right? In my opinion, we should not have had any such publicly owned service in the first place.
Nevertheless, we had a position where we did have a state-owned service. But let us be crystal clear about this, this asset is not and never was the property of the state, it is the property of all of the UK subjects, as it is through taxation that the infrastructure was paid for.
So, this then brings me to my first point on this privatisation, why were workers at the Royal Mail gifted shares? Why was public money (i.e. my money and your money) given away to people as a reward for doing their job? Or, probably more accurately, why was the Government bribing postal workers with our money not to strike? Since when was the Government in the business of giving in to ransom, and paying it with money that did not belong to them?
My second point on the privatisation is why are the proceeds of the sale not given back to the people who actually owned the business, i.e. us? Why has the Government been allowed to sell what it does not own and keep the money for itself? Why were the proceeds not converted into a tax cut?
There will be the inevitable brouhaha from certain corners that the privatisation was executed at the wrong price and favoured the City. You cannot expect politicians and civil servants to know the correct market price of anything. They are not market professionals and as they have no personal risk involved, thus they have no incentive to exercise proper price discovery.
Of course, they will take best advice on matters, but that advice is shown only to satisfy best effort criteria set out in their own regulations, in other words just as long as they ask a selection of banks their estimation of value, they have completed best endeavours, and have no culpability thereafter.
However, the banks or other advisors have no vested interest in representing the owners, but rather their interest is an efficient sale. Their remit is not to make as much money for the owners, but rather to make sure that the business is sold. But the story does not end there, as the banks have a vested interest in making money for their clients, so a discount to fair value has to be expected.
This brings me to my final point which will be completely overlooked by the commentators, most retail investors will not have been able to have participated in the IPO (Initial Public Offering) and could only buy once the shares were tradeable in the secondary market. Tracker funds make up the majority of pension fund, insurance company, and retail financial products.
If one has a FTSE 100 Tracker fund in ones ISA, one gets the performance of the FTSE 100 index without having to go to the effort of buying all 100 stocks on a weighted basis. This effort is done by ones fund manager who does precisely that. The tracker funds could not have bought Royal Mail shares until they knew that they would even be in the index. If they had bought the stocks and the privatisation meant that they were only ranked as the UKs 101 biggest company, the fund manager would have had to have sold the newly bought shares at a loss, so they have to wait and see what its market capitalisation actually is.
So the cheapness of the IPO as reported is a combination of Government and Civil Service lack of personal risk, advisors with polar opposite vested interests and portfolio weighting.
Iain McKie is the Parliamentary Candidate for the Isle Of Wight.