Business secretary Vince Cable
Business secretary Vince Cable (Reuters)

The smouldering political row over the sale of Royal Mail dramatically erupted during a heated session of a Commons committee when the Labour chairman accused ministers and their aides of gullibility and of being conned into selling the organisation on the cheap.

Adrian Bailey surprised both ministers and members of his own committee when he suggested that the very banks that had advised ministers on the sale price had then made huge profits when the share prices rose on trading.

"It begs the question of what were the motives of the advice they gave you. Were they conning you?" he said.

He went on to suggest that the government official who oversaw the sale, Mark Russell, was "demonstrating a degree of gullibility incompatible with the role you had to play in this".

But he faced a challenge from a Tory member of his own committee, Nadim Zahawi, said that it was illegal for adviser banks to profit from the sale and that there were Chinese walls between different arms of such institutions.

Bailey replied he had a "degree of cynicism" about the Chinese walls, which were designed to keep different arms of financial institutions independent of each other.

Business secretary Vince Cable said later that while he was also slightly cynical about some of the things that happened in financial markets, Bailey's implication was of criminality.

Industrial action

The unusual line of questioning clearly angered business and enterprise minister Michael Fallon who stepped in to insist that the sell-off had represented the best deal for the taxpayer and that Bailey was ignoring key factors affecting the share price, such as the threat of industrial action.

"A couple of weeks of strike action [which had been threatened by unions opposed to the sell-off] could have wiped out Royal Mail's profits for the whole year," he said.

The aim of the sale had been to ensure that long-term investors were attracted to ensure the stability of Royal Mail and that the six-day service was maintained.

The clash came after persistent claims by Labour that the government was so determined to sell Royal Mail and pocket the cash that it knowingly set the share price too low - at 330p. It has now risen to 566p.

Cable and Fallon argued that they acted on the best advice and that it was far too early to judge whether the sell-off had been priced correctly.

One institution had suggested that, within a year the price might have fallen to a tenth of its current level.

But none of this satisfied Labour members of the committee. Bailey demanded a full inquiry into the sale and the advice that ministers had been given.

Cable responded: "Absolutely not."

"When people have settled down, this will be seen to have been a professional, successful and well-managed operation," he said.