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Business Minister and Sevenoaks MP Michael Fallon defends 'cautious' valuation of Royal Mail which National Audit Office says cost taxpayers £750m

01 April 2014
by Chris Price

The Business Minister has defended the government after a report suggested taxpayers lost £750m because shares in the Royal Mail were sold off too cheaply.

Sevenoaks MP Michael Fallon tried to downplay findings by the National Audit Office, which described the government as being deeply cautious when it set the insitution’s share price at 330p when it floated on the stock market in October.

The report says the flotation could have earned an extra £750m in one day if the price had been set at its opening day closing price of 445p.

Business Minister and Sevenoaks MP Michael Fallon

Business Minister and Sevenoaks MP Michael Fallon

The 38% spike in price on their debut was the biggest one-day rise in a privatisation since British Airways in 1987.

Yet Mr Fallon defended the opening share price, saying the flotation could have been a failure otherwise.

He told Sky News: “We took independent professional advice at the time and to have priced it higher than we did would have run a serious risk of the flotation being a flop.

“That would have damaged Royal Mail irretreivably.

“We were certainly cautious. The Royal Mail is one of Britain’s most important public assets. You wouldn’t have wanted us to take risks with it.

“If the flotation had flopped the value of the Royal Mail today would have been far less than it is.”

Mr Fallon pointed to the share price dropping 20p at one point last week.

He said: “Since then we have seen some wildly varying fluctuations in the valuations different banks have put on the share price and we have seen a number of investors sell out presumably because they think the shares are now over valued.

The government earned £2bn from the floatation and still owns around 30% of the company.

Mr Fallon added: “We have reduced the risk of the Royal Mail having to come back to the taxpayer for support for the six day a week service that we all rely on.”

“When you launch a public offering of a share you often expect it to go to a premium in the first few days and weeks and that is exactly what happened.”

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