Royal Mail stake to be sold off, George Osborne announces

Media caption,
George Osborne: "It is the right thing to do for the Royal Mail, the businesses and the families who depend on it and crucially for the taxpayer"

The government's remaining 30% stake in the Royal Mail is to be sold and £3bn cut from government spending this year, George Osborne has said.

The chancellor said the Royal Mail shares money - valued at £1.5bn - would be used to pay down the national debt.

The £3bn in cuts come ahead of further reductions to be announced in July.

The NHS, schools and overseas aid are protected from cuts - but other departments such as the Home Office and MoD will have to find savings.

Labour accused Mr Osborne of "ripping up" his long term economic plan by springing the announcement on MPs.

The SNP said the move "poses real danger to the postal service and, in particular, the universal service obligation which is of huge importance to Scotland".

The government is committed to clearing the deficit by 2018/19 without increasing income tax or VAT, something Mr Osborne said would not be "easy".

He needs to find a further £30bn of savings over the next three years, including £12bn to come out of welfare spending and £13bn from cuts to government departments.

Former Labour leader Ed Miliband made his first Commons speech since losing the general election in the debate on the Queen's Speech, urging the chancellor to ensure David Cameron followed through "on his one nation rhetoric".

Media caption,
Ed Miliband: 'I used to be famous'

Mr Miliband promised to hold Mr Cameron's government to account from the backbenches and said the Labour Party needed to do some "hard and painful thinking" about why it lost the election.

The government holds a 30% stake in the Royal Mail, with the remaining 70% held by a combination of employees and private investors.

Shares in Royal Mail were initially floated at 330p per share, and were trading at 526p at market close on Wednesday but fell 2.5% on Mr Osborne's announcement.

Royal Mail privatisation

Image source, Reuters

Labour came up with the idea of selling off part of the Royal Mail, which is a separate company to the still publicly-owned Post Office, in 2008.

But the plan proved hugely controversial, with the trade unions threatening strike action and it was ditched in 2009, with then Business Secretary Lord Mandelson blaming weak market conditions.

Lib Dem Business Secretary Vince Cable resurrected the idea when the coalition government came to power.

But he was accused by the National Audit Office of selling it off far too cheaply, losing taxpayers millions. Shares climbed 70% higher than their original 2013 sale price.

Mr Cable refused to apologise, and said that the sale had raised £2bn for the taxpayer, with a further £1.5bn from the 30% stake in Royal Mail which it had retained.

Mr Osborne told MPs: "I am today announcing that the Government will begin selling the remaining 30% shareholding we have in the Royal Mail.

"It is the right thing to do for the Royal Mail, the businesses and families who depend on it - and crucially for the taxpayer.

"Further savings in departments this year - and selling our stake in the Royal Mail.

"Getting on with what we promised. Reducing the deficit - that is how you deliver lasting economic security for working people.

"For as everyone knows, when it comes to living within your means, the sooner you start the smoother the ride."

Business secretary Sajid Javid said the Royal Mail sell-off would happen "in the lifetime of this parliament" but that the government would listen to specially-appointed independent advisers about exactly how and when.

"We have plenty of time to work on this. I don't think it's the kind of thing we want to rush into in anyway."

He said his "overriding concern" was to "get the best possible deal for taxpayers".

'Misleading impression'

Mr Osborne said £3bn in efficiency savings had been achieved by belt-tightening in non-protected government departments and asset sales, including publicly-owned land around King's Cross station in London.

The savings were made in the Home Office, DWP and Defra and business department including the higher and further education budgets.

The Ministry of Defence will have to find £500m of savings this year, about 1.5% of its total budget.

The MOD says that it will come from "efficiency savings" and will not impact operations or manpower. An MOD source says the cut "could have been worse" and is "manageable" but the BBC understands it might have an impact on the department's equipment plans.

Mr Osborne will set out full details of future spending cuts in a Budget statement on 8 July.

The director of the Institute for Fiscal Studies, Paul Johnson, said the £3bn worth of cuts in the current financial year was a "useful down payment" but "big difficult decisions" were still required.

"£3bn will be tough to find in a single year but it's relatively small compared with the very tough target the Chancellor has set himself," he said.

Media caption,
Chris Leslie MP: "There's a sort of sense of panic at the Treasury, I think"

The IFS has said public spending cuts of 1% a year in 2016-17 and 2017-18 will be more difficult to achieve than was suggested in the Conservative Party's general election manifesto.

In a statement, the think tank said: "The cuts that the government announces later this year in next month's Budget and the following Spending Review may turn out to be deliverable.

"But they certainly will not feel like just 1% being taken out of each area of spending, nor will it require merely "£13 billion from departmental savings" as the Conservative manifesto described.

"While not inaccurate, these numbers give a misleading impression of what departmental spending in many areas will look like if the manifesto commitment to eliminate the deficit by 2018-19, largely through spending cuts, while not cutting spending in many areas, is to be met."

TUC General Secretary Frances O'Grady said: "The chancellor's plan for fast and extreme cuts will hold back growth, and it will slash the tax credits and vital services that workers and their families rely on."

Here is a full list of the departmental cuts announced by Mr Osborne:

  • Education non-schools - £450m
  • Health non-NHS - £200m
  • Transport inc. King's Cross property - £545m
  • Communities - £230m
  • Business, Innovation and Skills - £450m
  • Home Office £30m
  • Justice - £249m
  • Defence - £500m
  • Foreign and Commonwealth Office - £20m
  • Energy and Climate Change - £70m
  • Environment, Food and Rural Affairs - £83m
  • Culture, Media and Sport - £30m
  • Work and Pensions - £105m
  • HM Revenue and Customs - £80m
  • HM Treasury - £7m
  • Cabinet Office - £17m

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