PAC: Eurostar deal raises questions on government asset sales

20 Jan 16

The Treasury’s £757.1m sale of the taxpayers’ stake in Eurostar raises fresh concerns that the government is undervaluing public assets when privatising them, the Public Accounts Committee has warned today.

In a review examining the sale of the cross-channel rail operator, MPs highlighted the money raised was significantly less than taxpayers’ total financial investment in the firm, estimated to have been some £3bn.

Committee chair Meg Hillier said the stake in Eurostar was sold for significantly more than valuations had anticipated, but also significantly less than the total taxpayer investment.

The Treasury agreed to sell its 40% stake in Eurostar for £585.1m, almost double the valuations produced before the sale by both the government’s project team and UBS its financial adviser. In a separate deal, Eurostar also agreed to redeem the government’s preference share, providing a further £172m.

The sale raises “serious questions about the government’s approach to valuing public assets”, Hillier stated.

The sale of Eurostar report concluded there was an over-reliance on a small pool of financial and legal advisers in some asset sales and projects.

MPs highlighted that the undervaluing of Eurostar formed part of a pattern of undervaluing publicly owned assets prior to sale, including the sale of the Royal Mail.

The committee called on the Treasury to examine the underlying causes of undervaluing assets and to consider revising its Green Book asset sale guidance to ensure it produces more realistic valuations. This would protect the taxpayer from selling assets too cheaply and better inform decisions to hold assets.

Improvements to the Department for Transport’s evaluation of major projects were also needed, the report concluded, to ensure that assessments of value for money were “robust”. The recommendation comes after the department said it did not accept its own evaluation, published in October 2015, that HS1 represented poor value for money.

Hillier said that a two-year delay in publishing this evaluation was unacceptable.

“In particular it is deeply concerning that work towards High Speed 2 should have progressed without full and detailed consideration of HS1,” she added.
“The government’s evaluation of HS1, produced at the urging of this committee, could and arguably should have been a key piece of evidence in scrutinising plans for HS2.

“Instead it arrived two years late, since when the government has claimed benefits arising from HS1 that cannot be measured by its own methodology. It is simply not good enough.”

Responding to the report, a Treasury spokesman said: “Releasing public assets we no longer need is at the heart of our long-term plan to tackle Britain’s debts and boost economic growth, and that’s why we’ve recently identified up to £4.6bn of further asset sales, to help build on the huge progress we’ve already made.

“It is misleading to suggest the government set out to undervalue the assets we hold. In order to achieve good value for the taxpayer, we sought expert advice for this sale and our approach was approved by an independent adviser, resulting in a total of £757.1m raised which will go towards reducing the national debt.”

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