Ministers Face New Royal Mail Sell-Off Row

By Mark Kleinman, City Editor

Ministers considered selling the Government's entire stake in Royal Mail when the shares were trading close to their post-privatisation peak earlier this year - but decided against doing so because it risked antagonising City investors.

Sky News has learnt that Vince Cable's Department for Business, Innovation and Skills (BIS) and the Shareholder Executive - which oversees state-owned assets - discussed the sale of taxpayers' remaining 30% stake in Royal Mail in March, five months after it listed on the stock market.

By deciding not to press ahead, ministers effectively forfeited a further £500m gain for the public purse.

The disclosure risks reigniting the row over Royal Mail's controversial sell-off, with Mr Cable accused by MPs on the BIS Select Committee and the National Audit Office of costing taxpayers £1bn by pricing the shares too cheaply last autumn.

At the time the sale of taxpayers' remaining 30% shareholding was discussed in mid-March, the postal operator's shares were trading at around 590p, meaning that a sale would have generated close to £1.8bn.

Selling the shares at that point would have entailed breaking a lock-up agreement put in place at the time of the company's initial public offering (IPO) last October, under which the Government pledged not to sell any further shares for at least 180 days.

However, such lock-ups include scope for exemptions with the consent of the underwriting banks and are frequently broken by listed companies, meaning it would have been possible for ministers to sanction the early sale of the shares.

Critics argue that alienating institutional investors should not have been a preoccupation for ministers after some of the so-called 'priority investors' allocated shares during the privatisation sold them almost immediately, despite having been identified as long-term shareholders.

By the time the lock-up agreement expired on April 13, Royal Mail shares had fallen by approximately 20% from their mid-March level to around 490p.

With the shares having declined since then by a further 11%, ministers risk being accused of sacrificing a potential £500m gain by not having sold the 30% shareholding when it was under active consideration.

In a statement, a BIS spokesperson said:

"Ministers receive regular advice on Government shareholdings of which Royal Mail is one.

"As is standard market practice, Government gave a commitment at the time of the IPO not to sell any further shares for 180 days post admission to the [London Stock Exchange] in order to provide the company with greater stability.

"The Secretary of State was never advised to break this lock-up period."

Chuka Umunna, the shadow business secretary, said the disclosure offered further evidence that the privatisation of Royal Mail had been "botched".

 "The handling of this since they bungled the IPO has been characterised by incompetence and attempted buck passing that will fool no-one," he said.

The sale of the Government's remaining Royal Mail shares is now considered unlikely before the General Election next May.

Sky News has also learnt that Labour is expected to include a commitment to retain the stake in its election manifesto.

The issue was discussed at the Party's recent National Policy Forum and will be debated at its autumn conference next month.

"The Tories have put the future of the postal service at risk. They pressed ahead with an unnecessary fire sale of Royal Mail, in the process short-changing taxpayers by hundreds of millions of pounds," a Labour spokesman said.

"As part of Labour's commitment to ensuring that the public interest in Royal Mail is upheld, the National Policy Forum discussed how Labour will commit to keeping the remaining stake in public ownership.

"These proposals will be discussed at Annual Conference as part of Labour's priority to safeguard the services consumers and businesses get from a privatised Royal Mail."

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