Royal Mail strike could spare Vince Cable's blushes

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There has been much ink spilt and angry words exchanged about whether Royal Mail has been sold on the cheap. The simple answer is that, yes, it has.

It is quite clear that the Government and its bankers massively underestimated the demand for Royal Mail shares. They could have generated perhaps £700million more for the taxpayer.

The Government has been taken aback by the public clamour for shares. Interest from City institutions also outstripped expectations.
Strike threat: If the Communication Workers Union and its secretary Billy Hayes abandoned action and reached a long-term deal with Royal Mail, the shares could rocket still further

With hindsight this seems an extraordinary misjudgment and begs a few questions about the advice received by Vince Cable’s Department for Business.

But before we write this off as a disaster there are a few other key issues to add to the debate.

Pure maximisation of the return may be appropriate in most sales, but in the case of Royal Mail the public interest in its performance continues long after privatisation.

We need this organisation to remain a well-funded and successful business for the efficient operation of a competitive delivery market.

Had the sole aim been to maximise returns, Royal Mail may have been priced too high and found itself with a register of shareholders uncomfortable with what they had paid.

This could have put more pressure on Royal Mail to make short-term profits rather than long-term investment.
This does not mitigate the apparent error in pricing, but it should not be ignored when we weigh the success or otherwise of the sell-off.

Crucially, we must wait some time to assess whether the price really does hold up. There is a chance that over-eager retail investors starved of a decent public offering and the City, eager to invest for some strong income, have got a little ahead of themselves.

The longer term picture may be less one-sided. The privatised Royal Mail is part of an increasingly competitive market for commercial deliveries. Technology continues to advance at a bewildering rate and will bring unknowable challenges.

Where will it be in five years or ten years? Finally a strike ballot looms this week for Royal Mail’s 150,000 workers and action could come later this month. Ironically a strike which knocked the share price of Royal Mail might actually make the Government’s valuation seems more reasonable.

If the Communication Workers Union abandoned action and reached a long-term deal with the company, the shares could rocket still further. That really would heap embarrassment on the Government for having undervalued the shares.
I wonder if the CWU’s Billy Hayes has thought of that?