Royal Mail Sell Off: Why did the Government fail to deliver to small investors?

By Andy Thompson, Director of Operational Policy and Research Wealth Management Association

On 10 June 2015 the Government raised another £750 million from the sale of half of its remaining 30 per cent stake in Royal Mail.

But why were private investors not given the opportunity to participate as they had been in the Initial Public Offering in 2013? Ultimately it is for the Government and its advisers to answer that question but in the absence of anything definitive perhaps I can offer an explanation.

In a recent written parliamentary question, the Rt Hon Anna Soubry, the Minister for Small Business, Industry and Enterprise at the Department of Business, Innovation & Skills, was asked what provision the Government plans to make in the sale of the remaining public stake of Royal Mail for shares to be made available to retail investors directly. She replied that “as was the case for the recent sale, any future sales would require us to work with advisers to consider our sale options and assess which one best meets the stated sale objectives”, whatever they may be (my words not hers).

More tellingly the Minister went on to say “However, at any time, Royal Mail shares are directly available to retail investors as they are freely traded on the stock market.” In other words, Mr & Mrs Private Investor, the good news is you can have Royal Mail shares; the not so good news is you have to pay stamp duty or SDRT for the privilege of buying them in the secondary market. You won’t get the discounted price at time of sale but will no doubt have to pay a premium in the secondary market. Sounds like an unlevel playing field to me.

So why were small investors excluded? A source close to UK Financial Investments, the body set up by the Government in 2008 to manage the Government’s shareholdings in The Royal Bank of Scotland and Lloyds Banking Group and ultimately to return the Government ownership to the private sector, was reported to have said in respect of the planned retail sale of Lloyds shares that ‘It would be much cleaner and neater if we didn’t have this retail offering’. Whilst there is no evidence to suggest that this is a view held by Government Ministers, Ms Soubry’s recent parliamentary answer does nothing to dispel our concern that there is an element of truth to that purported UKFI statement.

There still seems to be a perception amongst corporate advisers – and let’s not forget that half of the UKFI Board come from an investment banking background – that involving retail is difficult, complicated, messy, expensive, however you want to describe it, and that involving retail will slow down the process, add significantly to costs, and destabilise any proposed pricing structure.

Twenty years ago when private investors were dealing predominantly in paper, many of those arguments would hold true. But today with the vast majority of the 4 million private investors holding their shares in nominee accounts which allow for timely, efficient and cost-effective processing of shares through the Internet, those arguments no longer hold true. In 2013 postmen and women around the country did not have to deliver hundreds of thousands of share certificates to the 690,000 private investors who were able to benefit from the Royal Mail IPO. That is just not how it works these days.

But the Government do not need me to tell them this. They worked it out the first time in 2013 so what has changed? Perhaps the next time the Minister replies she will more clearly articulate that if retail investors are not to be included in a Government sell-off, particularly one that is heavily retail focused, it will be made clear as to the reasons why not.