Press release

Government responds to National Audit Office report: “The Privatisation of Royal Mail”

Department for Business succeeds in achieving its key objectives in the privatisation of Royal Mail.

This was published under the 2010 to 2015 Conservative and Liberal Democrat coalition government


The government today (1 April 2014) welcomed the National Audit Office’s (NAO) finding that the Department for Business succeeded in achieving its key objectives in the privatisation of Royal Mail.

The NAO found that Royal Mail is now more likely to be able to operate the universal postal service without taxpayer support, sustaining the universally-priced, 6 days a week service required by law. Privatisation has reduced the risk to taxpayers. Royal Mail is now a profitable business with much improved cash flow, following government action and reforms.

Business Secretary Vince Cable said:

The National Audit Office’s main finding is that we achieved what we set out to do. We secured the future of the universal postal service through a successful sale of a majority stake in Royal Mail, predominantly to responsible long term investors.

Achieving the highest price possible at any cost and whatever the risk was never the aim of the sale. The report concludes there was a real risk of a failed sale attached to pushing the price too high. And a failed sale would have been the worst outcome for tax payers and jeopardised the operation of Royal Mail going forward.

The report also comprehensively demolishes the argument that the government should have relied on the price valuations of some banks who were pitching for the contract to sell Royal Mail.

The NAO confirms we have protected taxpayers from the risk of needing to offer ongoing support to the company as well as safeguarding the vital 6 day a week service that customers and businesses around the country rely on.

The sale price for Royal Mail shares was set after a thorough process of engagement with more than 500 institutions, taking into account the company’s industrial relations, market conditions at the time and professional assessment of Royal Mail’s market value.

The initial public offering (IPO) process of bookbuilding used to carry out the sale is standard market practice for IPOs and is open, transparent, and allowed the government to offer the public the opportunity to buy shares.

BIS Permanent Secretary and Accounting Officer Martin Donnelly said:

We have agreed the NAO report. We remain strongly of the view that our course of action was appropriate given the significant risks at the time and the fact that the alternative of a failed sale would have been the worst outcome for the taxpayer.

The sale price secured by the government was based on a comprehensive process of preparation, in which we took extensive professional advice and consulted with more than 500 investors. We have raised almost £2 billion for the taxpayers in the process.

By retaining a 30% stake in the business we have made sure taxpayers have benefited from dividend payments and will continue to benefit from share price rises after the sale.

Findings of the NAO report include:

  • the government was right to place little reliance on the estimated potential valuations submitted by banks who were pitching to be part of the syndicate handling the sale
  • the taxpayers’ remaining 30% stake has appreciated in value, and is worth more than £1.5 billion at current trading prices
  • the government’s estimate of the value of Royal Mail if retained in public ownership was less than £1 billion, compared to the nearly £2 billion raised from the sale of a majority stake
  • it was right to appoint expert advisers, while the fees paid to the advisers were low compared to the market average and to government precedents

The government published its objectives for the sale in April 2013, which were to sustain the universal service for the benefit of all users through introducing private sector capital and commercial disciplines, to be achieved through:

  • delivering a sale of shares within this Parliament
  • creating an employee share scheme that would put at least 10% of the company in employee ownership
  • delivering a financial outcome for the taxpayer, which, when considered in the context of the policy objective, represented value for money

Notes to editors

1.In October 2013, the Shareholder Executive, part of the Department for Business, Innovation & Skills, sold 60% of the government’s shares in Royal Mail for 330p each, generating proceeds of £1.98 billion. A further 10% stake was given to Royal Mail employees, and 30% retained in public ownership.

2.Timeline of events in Royal Mail sale process in 2013:

  • April 25 - the government published its objectives for the sale
  • May 29 - appointment of Joint Global Coordinators and Joint Bookrunners for the sale
  • July 10 - the government confirmed its intention to proceed with a stock market flotation of Royal Mail in the financial year 2013/14
  • July 30 - the government announced details of the employee share scheme
  • September 4 - the Communication Workers Union (CWU) announced that it would ballot Royal Mail workers for national industrial action
  • September 12 - the government formally announced its intention to proceed with an initial public offering of Royal Mail
  • September 27 - Royal Mail publishes IPO Prospectus and the government announces the offer size and price ranges
  • September 27 to October 16 - the CWU ballot ran between these dates
  • October 1 - US Congress fails to agree funding deal, leading to partial US Government shutdown until 16 October (deadline for debt default was 17 October. Deal eventually reached on 16 October)
  • October 8 - offer closed
  • October 10 - the government announced the share price for Royal Mail shares
  • October 11 - conditional dealing of Royal Mail shares began on the London Stock Exchange.
  • October 15 - unconditional dealing of Royal Mail shares began on the London Stock Exchange
  • October 16 - at the close of the ballot, the CWU announced a 24-hour national strike by Royal Mail workers would take place on November 4
  • November 5 - the CWU announced the strike had been called off after progress made in talks between the union and the company
  • December 9 - the CWU recommended its members accept a deal reached between the union and the company

3.Since the sale, Royal Mail shares have traded in the range 455p to 615p per share.

4.The government’s economic policy objective is to achieve ‘strong, sustainable and balanced growth that is more evenly shared across the country and between industries’. It set 4 ambitions in the ‘Plan for Growth’, published at Budget 2011:

  • to create the most competitive tax system in the G20
  • to make the UK the best place in Europe to start, finance and grow a business
  • to encourage investment and exports as a route to a more balanced economy
  • to create a more educated workforce that is the most flexible in Europe

Work is underway across government to achieve these ambitions, including progress on more than 250 measures as part of the Growth Review. Developing an Industrial Strategy gives new impetus to this work by providing businesses, investors and the public with more clarity about the long-term direction in which the government wants the economy to travel.

Published 1 April 2014