Advisers got pounds 34m for pits sell-off
Friday 03 May 1996
Of that total, says the National Audit Office study, the bulk went to just three City firms. Rothschilds, the merchant bank, was paid pounds 9.1m; Clifford Chance, the law firm, picked up pounds 12.7m and Touche Ross, the accountants, received pounds 4.3m. Dewe Rogerson, the City public relations agency, was paid pounds 320,000.
The sale provoked an outcry for two main reasons. At the same time as the deal was being struck, Mr Budge was being investigated by another branch of government to see if he should be disqualified as a director over his involvement in another business venture.
Lord Wakeham, the minister responsible for appointing Rothschilds, also caused a furore when he joined the bank after leaving the Government.
On the row over Mr Budge, the NAO found that Department of Trade and Industry officials talking to him about selling the pits had no idea he was also being looked at by the DTI's Insolvency Service. In the end, they decided not to apply for his disqualification but, says the NAO, "any such application could have had a significant impact on RJB Mining's bid".
Since then, reports the watchdog, the DTI has tightened its procedures, issuing guidelines to officials on obtaining information about bidders in privatisations and the sources they can use. These guidelines should be applied in future sell-offs, the NAO says.
On Rothschilds, the NAO revealed the bank initially demanded a pounds 4m "success fee" for handling the sale as well as charging an hourly rate. This demand, pointed out the watchdog, was only made after the bank had been chosen to handle the sale. The fee was subsequently negotiated down to pounds 2.5m.
In future, says the report, departments should think about the overall size of the package before agreeing to pay a success fee. The factors to be taken into account in determining fees should be agreed in advance of the adviser's appointment.
Officials are also criticised for failing to set budgets for the advisers' total costs. In future, they should "make every effort to set overall budgets at the earliest opportunity where reasonably reliable estimates can be made".
One of the hidden benefits to the Government from the pounds 963m sale, the report discloses, is that it agreed to act as a guarantor of the benefits to former miners from the British Coal pension fund - in return for a half share of any surplus from the fund. The NAO estimates this half share, on current forecasts, could yield pounds 2bn for the Government.
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