The business secretary, Sajid Javid, has overruled a warning from his most senior department official that giving Royal Mail shares to staff as part of its selloff would not represent value for money.
The government sold half its 30% stake in the postal service for £750m last week, at 500p a share – a considerable premium to the 330p float price. The Department for Business, Innovation and Skills (BIS) also handed another 1% of shares – worth £50m – to Royal Mail staff, on top of the 10% they were awarded as part of the 2013 flotation.
Martin Donnelly, permanent secretary at BIS, took the unusual step of seeking a letter of direction from Javid, and questioned whether the share handout was in taxpayers’ interests.
Donnelly wrote: “The Royal Mail is a key part of the UK’s infrastructure. Its efficient operation is critical to the economy and that, in turn, requires the full engagement of its workforce, including through necessary restructuring for the company to remain competitive. I have considered whether it is possible to construct a business case that the impact of the employee shareholdings on the company’s performance justifies the taxpayer’s expenditure involved. I am not aware of sufficient evidence to reach that conclusion.
“Against this basis, I conclude that while a decision to allocate more shares to Royal Mail staff up to a limit of a further 1% and on the same terms as previously is an entirely legitimate policy decision, it does not provide a tangible return to the taxpayer and so is not value for money as defined in the legislation.”
Responding to Donnelly’s letter, Javid overruled his objections and formally directed him to implement the policy. He wrote: “I have noted your concerns about the value for money of doing so. However, in coming to this decision I have taken into account the wider benefits of this policy. Employees currently comprise an important part of Royal Mail’s shareholder base.
“Furthermore, I believe there is merit in rewarding the employees of Royal Mail for their hard work, which has contributed to the recent performance of the company and has been reflected in the current share price.”
Research published by the Institute for Government thinktank, using Treasury figures, last year found there were relatively few instances of ministers formally overruling departmental secretary advice – 50 between 1990 and 2013.
Meanwhile, the Wealth Management Association, which manages £650bn of the UK’s wealth, said retail investors should have been included in the latest Royal Mail selloff. Andy Thompson, of the WMA, said: “In general, the retail investor community can provide much-needed liquidity and offer loyalty to companies they invest in. The government needs people that make responsible investments and look to the long-term future.
“Let us hope that when the time comes to sell off RBS government assets, retail investors will be offered the same opportunities as big institutions.”
The government plans to sell £32bn of its RBS assets in coming months.
