70 per cent of the Royal Mail is now in private hands. Photo: Getty.
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Its share price has fallen, but the Royal Mail sale was still a debacle

The government lost between £750m and £1.7bn in selling off the Royal Mail – or three times as much as the bedroom tax might save.

An announcement today, from the recently privatised Royal Mail PLC, has reignited the debate over whether the company was sold incompently by the coalition.

A slight fall in the share price has led some to suggest its IPO was not quite the disaster it first appeared – when its share price rocketed nearly 40 per cent in one day.

But, by any measure, the sale still appears to have been an abject failure.

Royal Mail’s shares were priced at £3.30 when they floated in October. Within hours they had risen nearly 40 per cent.

The spike wasn’t an aberration, as Vince Cable – the minister responsible for the sale – tried to suggest. (The other minister involved was Michael Fallon, who has since been made Defence Secretary.) The price stayed high, and within three months it had nearly doubled in value.

The current price is back in line with the price to which it rose on the first day of trading. At that price – around £4.50 per share – the government’s mispricing cost the taxpayer between at least £750m, but at January's peak price it cost £1.7 bn.

Cable has claimed that this outcome would have been impossible to predict, and criticism is all very well in hindsight. But the department was under no obligation to sell its 70 per cent stake all at once. It used a procedure called "book-building" to choose its floation price of 330 pence, and could have pursued similar measures to calculate the value of its shares.

Instead, it relied on the advice of many of the financial firms behind the last economic crisis – some of whom have been criticised by the Bureau of Investigative Journalism over their conflicts of interest – and sold almost all of its shares in bulk.

They did this despite the fact that the pre-launch demand for shares was 24 times greater than supply. It scarcely takes an economist to consider that a mispricing.

As a result, Royal Mail’s shares rose twice as much as any other new shares did on their opening day in 2013.

The £750m lost through the sale has cost far more than, for instance, the government's roundly-criticised bedroom tax is projected to save, and is twice as much as the nation spends on museums and galleries.

But, even more distressingly, the justification for the sale – a promise of long-term capital investment – quickly unraveled. The government allocated more than a fifth of the Mail's shares to 16 "priority investors" before launch. These were ‘long term, stable investors’, Cable declared in the wake of the sale.

But, by January, 75 per cent of them had sold at least 48 per cent of their holdings, and six of the 16 no longer owned a single share.

As usual, the government was left at the whim of private institutions who were placed under no obligation to deliver. After the stratospheric rise in the company's value, these financial firms made the quick profit made open to him.

Now, hedge funds, and other financial firms that were initially classed as "non-priority, long-only" funds, hold more of the company than the 16 priority investors who were used to justify the sale.

The past year has been relatively slow for the coalition. The Programme for Government, on which they ushered themselves into power, was never formally updated, and in June they announced the fewest bills by a government in 20 years.

But the selling of the Royal Mail was one of the great changes of the past year. Unfortunately, it has simply served as the latest example of how inept the government often is at selling the "family silver".

The Royal Mail is the company that delivers parcels and letters. It is (now) distinct from the Post Office, which operates the 11,500 red-lettered branches that pepper your local high street. The Post Office remains in government hands.

The government argued the service desperately needed private capital in order to reinvest and uphold its "universal service". Putting the firm in private hands ensured it wouldn’t compete with "schools and hospitals" for government funding.

They pointed to equivalent services across Europe – in Belgium, Austria and Germany – that moved into profit after privatisation, and delivered levels of service that more than matched British standards.

But, while this argument appears persuasive, in practice the sale has shown the way government appears incapable of mandating anything to the private firms it often relies upon. It also ignores the non-monetary benefits a government-owned service can provide.

It is the same problem that has plagued the government’s attempts to reform welfare, make the banks lend more, or introduce any large IT project.  

Harry Lambert was the editor of May2015, the New Statesman's election website.

Paul McMillan
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"We're an easy target": how a Tory manifesto pledge will tear families apart

Under current rules, bringing your foreign spouse to the UK is a luxury reserved for those earning £18,600 a year or more. The Tories want to make it even more exclusive. 

Carolyn Matthew met her partner, George, in South Africa sixteen years ago. She settled down with him, had kids, and lived like a normal family until last year, when they made the fateful decision to move to her hometown in Scotland. Matthew, 55, had elderly parents, and after 30 years away from home she wanted to be close to them. 

But Carolyn nor George - despite consulting a South African immigration lawyer – did not anticipate one huge stumbling block. That is the rule, introduced in 2012, that a British citizen must earn £18,600 a year before a foreign spouse may join them in the UK. 

“It is very dispiriting,” Carolyn said to me on the telephone from Bo’ness, a small town on the Firth of Forth, near Falkirk. “In two weeks, George has got to go back to South Africa.” Carolyn, who worked in corporate complaints, has struggled to find the same kind of work in her hometown. Jobs at the biggest local employer tend to be minimum wage. George, on the other hand, is an engineer – yet cannot work because of his holiday visa. 

To its critics, the minimum income threshold seems nonsensical. It splits up families – including children from parents – and discriminates against those likely to earn lower wages, such as women, ethnic minorities and anyone living outside London and the South East. The Migration Observatory has calculated that roughly half Britain’s working population would not meet the requirement. 

Yet the Conservative party not only wishes to maintain the policy, but hike the threshold. The manifesto stated:  “We will increase the earnings thresholds for people wishing to sponsor migrants for family visas.” 

Initially, the threshold was justified as a means of preventing foreign spouses from relying on the state. But tellingly, the Tory manifesto pledge comes under the heading of “Controlling Immigration”. 

Carolyn points out that because George cannot work while he is visiting her, she must support the two of them for months at a time without turning to state aid. “I don’t claim benefits,” she told me. “That is the last thing I want to do.” If both of them could work “life would be easy”. She believes that if the minimum income threshold is raised any further "it is going to make it a nightmare for everyone".

Stuart McDonald, the SNP MP for Cumbernauld, Kilsyth and Kirkintilloch East, co-sponsored a Westminster Hall debate on the subject earlier this year. While the Tory manifesto pledge is vague, McDonald warns that one option is the highest income threshold suggested in 2012 - £25,700, or more than the median yearly wage in the East Midlands. 

He described the current scheme as “just about the most draconian family visa rules in the world”, and believes a hike could affect more than half of British citizens. 

"Theresa May is forcing people to choose between their families and their homes in the UK - a choice which most people will think utterly unfair and unacceptable,” he said.  

For those a pay rise away from the current threshold, a hike will be demoralising. For Paul McMillan, 25, it is a sign that it’s time to emigrate.

McMillan, a graduate, met his American girlfriend Megan while travelling in 2012 (the couple are pictured above). He could find a job that will allow him to meet the minimum income threshold – if he were not now studying for a medical degree.  Like Matthew, McMillan’s partner has no intention of claiming benefits – in fact, he expects her visa would specifically ban her from doing so. 

Fed up with the hostile attitude to immigrants, and confident of his options elsewhere, McMillan is already planning a career abroad. “I am going to take off in four years,” he told me. 

As for why the Tories want to raise the minimum income threshold, he thinks it’s obvious – to force down immigration numbers. “None of this is about the amount of money we need to earn,” he said. “We’re an easy target for the government.”

Julia Rampen is the digital news editor of the New Statesman (previously editor of The Staggers, The New Statesman's online rolling politics blog). She has also been deputy editor at Mirror Money Online and has worked as a financial journalist for several trade magazines. 

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