Posts Tagged ‘Shareholder Executive’

Private Eye on the Failure of the Government’s Privatisation of the Royal Mail

June 24, 2015

In its edition for last night fortnight, 12th -25th June 2015, Private Eye ran this piece about Cameron’s latest privatisation of the Royal Mail. It pointed out that the rationale for the sale of its last remaining shares in Britain’s oldest state enterprise actually contradicts the previous announcements about how transferring it all to private ownership would somehow improve service. The article states very plainly that this shows what a fraud and shambles the sell-off of the Royal Mail really is. Here it is.

Royally Screwed

George Osborne’s decision to sell the taxpayer’s remaining 30 percent share in Royal Mail defies the whole purpose of the privatisation and confirms what a rip-off the original sale was.

When the leader of the government body that ran the original privatisation in October 2013, Shareholder Executive boss Mark Russell, was questioned by a parliamentary committee a few weeks later, he explained that “one of the main reasons that we are pursuing this policy of bringing in private sector capital is we expected private sector disciplines to come in on the back of the private sector capital”, which in turn would increase the value of the company. So “the very reason we were maintaining the 30 percent shareholding was because we anticipated that over time there would be some movement of share price, and we wanted the taxpayer to gain from that.”

In fact the Royal Mail share price shot up simply because the sell-off was undervalued at 330p per share. The price hit 600p within weeks and after a year of supposed “private sector discipline” now stands at around 500p.

The further sale now is either an admission that “private sector discipline” does not work magic and there isn’t much more upside for the taxpayer to expect on his 30 percent, or a desperate grab for cash by the chancellor. Or possibly both.

PS. The same Shareholder Executive that was criticised by the National Audit Office as selling Royal Mail shares with “deep caution, the price of which was borne by the taxpayer” has now acquired UK Financial Investments, the arm of the Treasury that will soon be selling billions of pounds’ worth of bank shares – an unlikely empire expansion that the taxpayer might come to regret.

In other words, the Tories’ final privatisation of the Royal Mail is pretty much like most of the other privatisations: it is purely driven by free-market ideology and the express intention of further enriching the private investors and wealthy Tory donors, who are expected to buy into the sale. For the public, it hasn’t led to any improvement in service. In fact, if previous privatisations are any guide, we can look forward to worse service coupled with a vast increase in prices in order to finance grossly inflated pay rises for the board of directors. And, as with all such privatisations, it’s also been grossly undervalued so that the taxpayer has not seen a proper return for the sale.

It is, as Private Eye has said, a rip-off.

It’s also another privatisation that I don’t think anybody wants. I can remember when the Royal Mail’s privatisation was first mooted back in the 1990s. I’m fairly certain my next-door neighbour’s at the time were working class Tories. I can recall them being absolutely horrified by the proposal, and stating very clearly that they did not vote in the election so it could be sold off.

Public opinion, however, means nothing to this government, nor indeed to much of the political class in general. They continue to remain absolutely convinced of the rectitude of free market ideology, despite its manifest failure to provide jobs, improve quality of service, or indeed give cheaper service. Privatisation – not just of the Royal Mail, but also of the rest of the utilities, including and especially the power companies and trains – is a massive, exploitative failure and should be reversed.

From 2013: Private Eye on Energy Miss-selling and Connections to Banks

March 22, 2015

One of the other scandals to have hit this country is overcharging and miss-selling by the energy companies. The majority of people in this country would like to see the power companies renationalised. It has, however, become the modern economic dogma that as much of the economy should be in private hands as possible, ever since they were privatised, along with gas and water, by the Tories. Nevertheless, public outrage has been so intense that Cameron recently made a few gestures towards getting energy prices. Much more optimistic is Ed Miliband’s pledge to lower electricity prices and to make sure that they stay down and affordable.

In their edition for 19th April – 2nd May 2013, Private Eye published this article on Scottish and Southern Energy’s miss-selling. They also revealed the involvement of senior bankers, including officials from the Bank of England, who should have been guarding against such fraud.

Energy Miss-Selling
Fried Rice

The shockwave caused by the record £10.tm fine for Scottish and Southern Energy (SSE), punished by regulators for lying to customers about non-existent savings, has reached all the way to the Bank of England.

According to Ofgen, there was a “woeful catalogue of failure” by SSE managers, who allowed “a culture of miss-selling to continue. They weren’t doing enough to prevent sharp selling practices from their selling agents. They actually provided misleading sales scripts.”

All this is very embarrassing for Lady Susan Rice, SSE Group’s senior independent director, who has been on the SSE board since 2003 – and since 2007 has also been a director of the Bank of England where, somewhat alarmingly as a seasoned blind-eye turner, she chairs the audit and risk committee.

“Independent” directors are meant to ask uncomfortable questions that puncture “groupthink”. But this clearly didn’t happen at SSE, which caused “substantial harm” to its customers, Ofgem says. “Failings did not just take place on the doorstep but also in the management.”

Attempts to rein in misbehaviour were also ineffective. While “SSE terminated doorstep sales in July 2011, failure in telephone and in-store sales persisted”. SSE staff were given sales scripts which claimed that switching to SSE was “just like the government intended”. One dishonest spiel ran: “What I’m here to do today is show you a government thing called deregulation which results in your energy prices being lowered by doing nothing at all.” The false claims actually led to bigger bills for customers.

“Lady Susan Rice is, and will continue to be, a highly valued director on the Court of the Bank of England,” was the reply when the Eye asked if the SSE scandal meant she should perhaps resign from her Threadneedle Street Post.

Rice was appointed at SSE thanks to her other job as managing director of Lloyds in Scotland, which she fits in between sitting on Scottish first minister Alex Salmond’s council of economic advisers, chairing the Edinburgh Festivals forum and the city’s book festival, chairing the Chartered Banker Professional Standards Board and sitting on the Oxford Said Business School advisory council. Not to mention the National Galleries Scotland’s patrons committee and something called the Finance Group on Climate Change.

Busy bee Rice isn’t the only member of the miss-selling SSE’s board with a banking background. Chairman Lord Robert Smith was a director of Standard Chartered, which was fined $340m for money laundering in deals with Iran – and like Rice he has a government job, too; last May Nick Clegg announced that he would lead the government-funded Green Investment Bank. He is also chairing the 2014 Commonwealth Games Organising Committee.

Also paying less attention that he should have been as SSE was Richard Gillingwater, a director (£54,000 last year) since 2007. Eye readers will remember him as chief executive of the government’s Shareholder Executive when it oversaw the sale of taxpayer-owned development fund CDC’s fund management arm, Actis, to its former managers for a pittance. Gillingwater is now chairman of CDC itself and has just retired as dean of the Cass business school, teaching up-and-coming suits, er, how to run businesses properly.

In other words, the culture of miss-selling in the banking sector, which led to the collapse of Northern Rock, and the present global economic crisis, spread to the energy companies, on whose boards bankers sat. Contributing to the banking crisis was the fact that the ‘independent’ directors there, who were supposed to check miss-selling and misconduct there, did no such thing. They turned a blind eye, just as Rice turned a blind eye to miss-selling by Scottish and Southern Energy.

Deregulation has not caused energy prices to come down, just as it the deregulation of the banks did not lead to improved and responsible trading. Anything but. It’s time these sectors were cleaned up. And Miliband is a far better bet to do this, than either the Tories or their Lib Dem sycophants. They won’t do anything at all.