No: What you’re voting for (part 2 – The Royal Mail Privatisation Scandal)

Have you ever nipped out the house for walk round the park, and come home to find that all of your furniture has been sold off at bargain prices?  I’m guessing not, but if it did happen you wouldn’t be thinking ‘oh great, they left a five pound note that I didn’t have before’ – you’d be rightly upset.  Furious even.

Well, conscious of it or not – as UK taxpayers we were owners of the Royal Mail, and the current government just flogged it without your say so.  It wasn’t in the Tory or Lib Dem manifesto – no-one voted for it, but the powers that be at Westminster don’t care about that.  The sale of the Royal Mail is so absurd and obscene that the media seems to be struggling to report on it.  I’ve done a bit of digging and the more I looked into it, the more shocking it got:

Earlier this year the Royal Mail reported that operating profits for the 52 weeks to the end of March 2013 jumped to £403m, up from £152m for the previous year.  Yes, this national treasure was turning over £9,300,000,000 last year, employing ~150,000 and ensuring a consistent level of postal service across the UK and making a profit which in turn would go back to the government.  The government could then use that profit to invest in modernisation, give the workers a bonus or ideally some sort of combination of the two.  Everyone’s a winner.

Not anymore, even the Financial Times is happy to acknowledge that with the recent privatisation of Royal Mail ‘the only loser is the taxpayer, whose furniture has been flogged – but at a fraction of its market price’.  I’m still struggling to come to terms with it to be honest: the audacity and obscenity that in these times of austerity – brought on because of the crash in the Finance Sector – the UK government just handed the Finance Sector a £750,000,000 bonus from our pockets and has waved them off, wishing them the best of luck.  It is a robbery that was performed by selling of shares grossly under-value.  In betting terms, this is like allowing bets to be placed on a game that has already finished with odds of 1 to 2 on (e.g. Celtic 2 Ajax 1 FT: bets still open for the game played on 22-10-13 (yesterday!)) – you’d throw everything you have at it.  Such was the rush for this that £27,000,000,000 of orders were placed for the ~£2,000,000,000 of stock that was available.

It is remarkable how easy it has been to pull the wool over the eyes of the masses: throw a token gesture of ‘sharing the profits’ seems to be enough to keep the scrutiny at bay – there has been vast profits, but certainly not for the UK taxpayer.  Here’s the breakdown (all pre-tax) with the sale price of 330p and actual value of 500p (which is what it was valued at by several advisors):

10% of the shares were given to the employees – assuming the shares were split evenly among the full 150,000 employees this would be £3333.33 per person.

There were 700,000 individual investors, roughly 1% of the population.  Assuming they all got the maximum allocation of £750 worth of shares, they saw the value of their shares rise to £1136.36 – a profit of £386.36.  This might not sound much, and to the individuals I don’t think it will change lives, but this equates to a total transfer of £272,000,000 from 100% of the population to 1%.

The government has kept on somewhere between 38% and 23% of the shares (incredibly the information isn’t readily accessible!) – we’ll assume that it is roughly in the middle of that and that it is 30% (as reported in this CNBC report).  Assuming they recognise the true value of 500p per share this equates to a value of £1,500,000,000 retained.

That leaves 44% for the Finance Sector to gobble up – £1,452,000,000 at the point of purchase, near instantly rising to the actual value of £2,200,000,000.  To be clear, the £748,000,000 difference belonged to the UK taxpayer but it was just handed over to the Finance Sector.  A giveaway, with no strings attached.  Tragically, it gets worse:  also from the CNBC report ‘Landsdowne, along with sovereign wealth funds including ADIA (Abu Dhabi), KIA (Kuwait Investment Authority), GIC (Singapore) and Norges (Norway) were all given allocations of around £50 million ($79 million), according to people close to the deal.’ Not only is one of the significant beneficiaries of this George Osborne’s Best Man (Peter Davies is a member of management committee for Lansdowne Partners), but we’ve handed vast sums of our national wealth to foreign governments!  Surely there should have been a control applied to ensure that all the initial buyers were fully subscribed to the UK tax system!?

The restriction on the individual investors to 227 shares (£750) was sold as a great measure to ensure that the sell-off didn’t simply reward those who already have the privilege of comfortable or vast wealth, but this has been little more than a gimmick to divert attention.  In reality, the individual investors were happy to take their quick earning of ~£350 and sell their shares on at the first opportunity.  This rush of transactions was Christmas come early for the brokers Equiniti who were appointed the task (another private Finance Sector bonus) and of course the sold shares then become open game – in fact the demand was so high that it crashed their system.  I suspect that the secondary buyers weren’t limiting themselves to 227 shares.

Tragically, this scandal is passing with little notice.  I thoroughly recommend Ian Bell’s great article summarising this situation, but sadly the media seem otherwise distracted.  I suspect those connected to the establishment have probably done alright from this; indeed my own pension has probably taken a step in the right direction (though I doubt I’ll be seeing a 50% increase in my pension fund), but I’m not so self-consumed to see that society at large has been royally shafted here.

The fact that this has happened against the backdrop of the independence referendum campaign is even more mind boggling.  The No campaign claim that we ‘share the risks’ by being part of the union – they’re caught with their pants down here: the establishment and their friends in the Finance Sector are self-titled masters at the forecasting of risk and it seems to follow that they don’t burden any.  At every turn they’re making a mint, regardless of the realities for the masses who suffer when their risk prediction models fail miserably.  Every day it gets clearer that the whole of the UK needs Scotland to vote Yes to break the establishment down – what we have now is out of control.

To summarise:

Overall % of shares Purchase price Actual Value UK Tax payer loss
Individual investors

16%

£528,000,000

£800,000,000

£272,000,000

Royal Mail Employees (150,000 staff)

10%

£330,000,000

£500,000,000

£170,000,000

Finance Sector

44%

£1,452,000,000

£2,200,000,000

£748,000,000

UK Government

30%

£990,000,000

£1,500,000,000

Total

100%

£3,300,000,000

£5,000,000,000

£1,190,000,000

Westminster is broken.  A Yes vote next year is needed – only breaking down the current system will transform the priorities of our government(s) to focus on society at large.  Rest assured that while the Scottish government is subservient to the whims of Westminster, nothing is safe – this is the uncertainty that a No vote will bring.  Our budget is determined by Westminster’s spending choices and Cameron has a taste for privatisation.  There is a dangerous perception that devolution has enabled Scotland to keep the key services of education and health as part of the social contract and that it will always be so.  However, as the Westminster government reduces education funding by introducing high fees and also embarks on the privatisation of the NHS (see this Guardian article and this article from a Nottingham based GP), the Scottish government will be forced to follow because its budget will be cut.  This in turn will force moves in the same direction as Westminster policy regardless of the will of the Scottish people or parliament.  I recommend reading this article on Wings Over Scotland for more on why only independence can save Scotland’s NHS.

Finally, a picture paints a thousand words (http://www.edinburghnews.scotsman.com/news/opinion/frank-boyle-cartoon-vince-cable-and-the-royal-mail-1-3148551):

Royal_Mail_robbery

As a footnote, the share price at the time of posting this blog is 537p – a 69% increase on the initial sale price.  The share price will inevitably go up and down moving forward, such is the market with private companies.  However, which way that trend goes is in the hands of the new owners – we can only hope that their efforts to maximise ‘shareholder value’ doesn’t compromise the quality of service that the public receives…

About stuartmdarling

I live in Motherwell & work in Edinburgh in the Oil & Gas sector, which has been taking me around the world for 14 years now. My passion for politics and music go with me every step of the journey...
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3 Responses to No: What you’re voting for (part 2 – The Royal Mail Privatisation Scandal)

  1. Tragically, this story continues to get worse… it has now come out that the banks who advised the government charged £17 million for their services (what sort of day rate are these guys on!?). Further to that, the same banks were then given the opportunity to buy 13 million shares at the discount rate in Royal Mail as investors rushed to buy into the new private company. More on this story here: http://www.theguardian.com/uk-news/2013/oct/25/royal-mail-shares-record-price

    This is like me convincing someone to sell me £30 for £20, and me charging them a further £10 for the advice. That’s right, I give them £20 and they give me £40 in return. If anyone wants to take me up on this offer, please get in touch…

  2. Pingback: No: What you’re voting for (part 3 – A system of hypocrites) | Darling Blogs

  3. Pingback: Referendum Comment: A Response to Ming Campbell | Darling Blogs

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