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Mail shot aimed disgracefully low

When privatisation of the Royal Mail was first mooted, it caused widespread disquiet.

There were fears it would lead to the end of the universal service, which delivers to far-flung rural communities and city centre addresses for the same price, and concerns that the sale was taking place in the teeth of widespread opposition. The prospect of the Government making a hash of the whole process, however, was low down the list of potential nightmares. Given the Coalition's pro-business credentials and apparent zeal for privatisation, there was an unspoken assumption that they could be trusted at least to do that properly.

What touching naivete that now seems. Today's highly critical report on the privatisation process by the Commons Business Select Committee, the second damning official report on the affair, underlines once more how poorly managed the sale was. It has found that taxpayers have lost out to the tune of £1 billion because the Government drastically underestimated demand for shares.

Business Committee chairman Adrian Bailey sums the problem up thus: "The basic facts are that the offer price was 330p per share, the price has risen as high as 618p per share, and now stands around 473p." As mistakes go, it was an extremely expensive one.

The committee itemises the Government's failures as follows: it received "poor quality" advice; it failed to get a good return on Royal Mail assets including three sites in London; the Government's priority investors "bought cheaply and sold quickly" at a profit: the list goes on. The MPs' verdict piles pressure on Vince Cable, the Business Secretary. Now it is known that the rise in the Royal Mail's share price cost the Government the price of a couple of hospitals, Mr Cable's dismissive remark that the initial jump in the share price was mere "froth", seems worthy of Marie Antoinette.

In the Government's defence, ministers did indeed receive poor advice, and not just from civil servants. The Business Committee generously shares round the blame between the Shareholder Executive (part of the business department which looks after the Government's financial interest in state-owned businesses), the Government's financial adviser Lazard, and UBS and Goldman Sachs. They failed to gauge demand at higher price levels. In a pre-emptive strike, Mr Cable acted on Wednesday to order a review of state sell-offs and, though this debacle of eight months ago is certainly a blemish on his record, it will probably not put his job in jeopardy.

The question now is what can be done to prevent a repeat of this failure. The committee recommended that companies advising the Government on share issues should be excluded from becoming a preferred investor, which is eminently sensible given the obvious potential for a conflict of interest. The new review will likely result in further reforms.

The arguments for the privatisation always looked questionable. The fact that the market judged The Royal Mail to be worth so much more than the Government estimated suggests it may have been a worthwhile asset to have kept within public ownership.

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