Grant Woodward: The whiff of cronyism over Royal Mail sale

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VINNY gets a job in middle management at the local factory, which if you ask him is the very least he deserves. In Vinny’s mind, he should be running the whole show.

He thinks the top bosses are doing it all wrong, you see. Have been for a long time. No wonder the company’s in trouble, trying to dig itself out of the pile of debt it accumulated before the recession.

Vinny insists he saw the crash coming before anyone else did. If only someone had listened to him.

So senior management decide to give him a chance. See if Vinny’s as good as he says he is. As part of the plan to balance the books, they’re going to sell off an arm of the company. They tell Vinny they want to flog it quickly, but that they obviously need to get the best possible price for it.

No problem, says Vinny. But he’s not quite sure what constitutes a good price, so he decides to ask around. Those in the know give him a figure, and it sounds good to Vinny. So he agrees to sell it to them. Vinny tells everyone what a good job he’s done.

Only someone finds out that the buyers are now selling the business on to someone else. And they’re making millions of pounds in profit. Money Vinny’s company could have desperately done with. It means they’re going to have to freeze wages and cut more staff. Starting with Vinny.

That’s the way it would play out in the private sector, anyway. But the Government is clearly a different kettle of fish. After all, how else do you explain Vince Cable continuing to draw a salary from the public purse when he’s cost us the best part of a billion quid?

Naive would be a polite way of putting the Business Secretary’s hamfisted approach to selling the Royal Mail – a crown jewel even Margaret Thatcher baulked at selling off in the 1980s because she was “not prepared to have the Queen’s head privatised”.

Of course, the decades since haven’t been particularly kind to Royal Mail. Yet, under the assured stewardship of chief executive Moya Greene, the business achieved a remarkable reversal of fortune – announcing pre sell-off that it had doubled its annual profits to an impressive £403m.

This, coupled with its booming parcels business, made it an attractive proposition to everyone from key investors to the man in the street. Yet, having canvassed the views of more than a dozen “key investors” ahead of the initial public offering, Cable decided to float shares at just 330p a pop. We know what happened next. It didn’t take a soothsayer to predict. Certainly someone who has spent the last six years telling us he spotted the credit crunch a mile off as the Business Secretary has done, should have seen it coming.

On their Stock Market debut last October, Royal Mail’s shares spiked by 38 per cent – the biggest one-day rise in a privatisation since British Airways in 1987 – as investors tried to snap up more than 23 times the number of shares available. And those key investors who caused the deal to be struck too cheaply and were rewarded for their trouble by better allocations than other investors? The Government had banked on them forming part of a stable long-term and supportive shareholder base. Instead, they sold half their stock within weeks for a bumper profit. Cable, in other words, had been done up like a kipper.

The National Audit Office says the Government could have made an additional £750m for taxpayers if it had priced the sale at the first day closing price of 455p. That’s enough to cover the annual salaries of 34,000 NHS nurses and dwarfs the £500m saving that the controversial spare room subsidy, or bedroom tax, is meant to deliver.

Ask Vince Cable, however, and he’ll have you believe he struck the deal of the century. That leap in share price within the first 24 hours? Just “froth” said Cable at the time. It would take take months before the shares settled to their true value, he said.

Six months on then, how does he explain the fact that the share price has risen still further to an eye-watering 556p – more than 70 per cent higher than the offer price? Still froth, says the Business Secretary, displaying a simply staggering degree of bloody mindedness.

Margaret Hodge, chair of the Public Accounts Committee, thinks differently. She says it’s cast iron proof his “department had no clue what it was doing”.

Labour, meanwhile, has pointed to the fact that Lansdowne Partners, a hedge fund company which saw the value of its Royal Mail shares rocket by £18m after that first, frantic day of trading, counts a certain Peter Davies as a member of its management committee. The same Peter Davies who just so happens to have been George Osborne’s best man.

Lansdowne denies any suggestion that the process was anything but above board and says that it’s not the company which directly benefits from these investments, but British pension funds, charities, universities and others who entrust their money with the firm.

For some, however, it doesn’t dispel the whiff of cronyism lingering over the fire sale of a public service that, in an era of austerity, cost taxpayers £750m in one day of trading and for which Vince Cable must now carry the can.