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Wednesday, 1 July 2009

Mandelson's tail between his legs

Lord Mandelson has told peers there is "no prospect" of the partial sell-off of the Royal Mail going ahead in the "current circumstances". The partial sell-off, opposed by many Labour MPs, had been due to go before Parliament before the summer break.

The business secretary announced in the House of Lords that the state of the economy had made it "impossible" to complete a deal on favourable terms. "When market conditions change we will return to the issue," he told peers.

But the Lords aren't that stupid. Being a doddery bunch they know a thing or two about pensions, and more particularly in this case pension deficits like the £5.9 billion deficit on the Royal mail pension fund. For years the state owned company has boosted its profits and bonuses of its chief executive Adam Crozier by skimping on donations to its pension fund. No third party investor was going to buy into the company unless the government plugged the gap and the government wasn't going to put any money in because the liability was more than the money they were trying to raise from the business.

But there you have it. They seem to be unable to value anything on a net basis. Liabilities are ignored, while assets are prized so the net valuation is wrong. Somewhat akin to valuing GDP as a creator of (non-)jobs while ignoring the cost and long term impact of the borrowing required to fund the extra GDP. Or standing with your fingers in your years and shouting "La, la, la, I cant hear you".

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