Royal Mail and Lloyds proves selling government assets is harder than you think

Royal Mail sorting office Image copyright PA

I remember chatting to a government minister shortly after the official announcement of the sale of Royal Mail in the autumn of 2013.

"Urenco will be next," the minister confidently predicted, referring to the nuclear reprocessing business jointly owned by the UK and Dutch governments and two energy firms in Germany.

"Next year," he predicted with a final flourish.

Well, that next year (2014) has come and almost gone and the chances of the government selling its £3bn stake in Urenco appears to be about as far down the track as it was when I had that conversation.

That is, not very far.

And that raises an important point about the sale of government assets - it is far harder than anyone in government and Whitehall ever imagines.

Today, the former City minister Lord Myners published his report on the sale of Royal Mail last October.

If you have access to strong coffee and a couple of hours to spare it is worth reading the report in full here.

Because it makes some important points about the complexity of government share sales (particularly when there is a retail offer to individual investors), how that complexity could be dealt with, the role of withdrawal rights and testing investor interest (book building) and why making snap judgements about selling assets "on the cheap" doesn't actually get you very far.

Or if you can't quite be bothered with the whole report, here's how we are covering it this morning.

Image copyright Reuters

Lord Myners' report comes the day after the government announced how it would sell the latest tranche of its stake in Lloyds Bank.

Ambitious is not a word that springs to mind.

Over the next six months, the Treasury will seek to off-load 20% of its stake in small amounts, taking its holding down from 25% to 20%.

At that rate, it will be 2017 before it is finally out of Lloyds.

This stuff takes time.

In 2010, Treasury sources were confidently predicting that by the time of the next election the government would have sold its stake in Lloyds and would be well on the way to selling its stake in Royal Bank of Scotland.

Neither have proved possible, due to a mixture of economic volatility, new financial regulation needing time to bed in, banking misconduct fines depressing valuations and lack of opportunity.

It is worth just spending a minute on that last point, because it was also true of Royal Mail.

There are actually very few "windows" for the government to sell assets.

Many chunks of the year are unavailable because the government is holding what might be considered insider information on tax or policy changes, around the time of the Budget or the Autumn Statement for example.

Then there are the wider restrictions on quarterly results and the closing of the annual accounts.

Investors know that the government is constrained on asset sales to a few moments in the year, even if it is a willing seller. That has the effect of depressing prices.

This issue matters because the government has said that it wants to make as much as £20bn from asset sales by 2020.

Targets include the Land Registry, part of the student loan book, the government's stake in Eurostar, Ordnance Survey and the Met Office.

If the government wants to avoid the controversy of Royal Mail it should consider how those processes work so the sales are successful - and the tax payer receives full value for the assets that they, of course, paid for in the first place.