Stephen Lovegrove, the former banker running the Shareholder Executive, must dispose of high-value government assets such as the Channel Tunnel rail link. He tells Matthew O’Toole it will take expertise, but also good timing
In its Victoria Street offices, the Department for Business, Innovation and Skills (BIS) examines and watches over the health and development of UK plc. But in one corner of the building, a team of people has a much more hands-on business role: the Shareholder Executive, headed by Stephen Lovegrove (pictured above), manages the government’s stake in some of the more colourful businesses in public ownership. These include the Tote chain of bookmakers, Channel 4 and the Covent Garden Market Authority, as well as a host of other institutions that, for various political and historical reasons, have been established and run by the state.
As well as balancing the aim of maximising taxpayer value for money from these institutions with the ongoing need to remain within what Lovegrove calls the “policy envelope”, the Shareholder Executive has been charged with overseeing the disposal of several of these assets in order to help reduce the deficit. How have they been managing?
Lovegrove admits that the financial crisis, which saw two nationalised banks – Northern Rock and Bradford & Bingley – initially placed in the hands of the Shareholder Executive, has meant “a lot more work” for his unit. Though both banks have now been handed over to a separate, Treasury-managed body – UK Financial Investments (UKFI) – Lovegrove says the handover itself “took a lot of work”.
Meanwhile, the executive was also responding to the ramping-up of the existing Operational Efficiency Programme (OEP): the Treasury-led scheme which called for around £3bn in disposal of centrally-held assets by 2013-14 (asset and property sales from other parts of the public sector are predicted to take the total up to over £16bn). The executive has set up central coordinating teams to lead on the property and shared services strands of the OEP. And all this came on top of its normal workload of overseeing 27 businesses, turning over £20bn. Has Lovegrove got new staff to help cope? “A few; not very many,” he says with a smile.
The Shareholder Executive’s 58 officials (including a 17-strong executive team) sit inside BIS and report ultimately to the department’s permanent secretary, Simon Fraser. Nonetheless, Lovegrove is keen to stress that the executive has a “cross-Whitehall mandate”, and between 80 and 90 per cent of its work “is done for departments other than BIS”.
In their roles and skills, then, Lovegrove’s team are not your average civil servants. Nonetheless, they are paid within existing departmental pay bands: is it tough to attract top talent from the City or professional services firms, given the obvious pay differentials? Lovegrove, who before joining government worked for Deutsche Bank, admits that lower government wages may deter some talented applicants. “The kinds of skillsets we need, at the seniority we need them, will be capable of commanding multiples of what they get paid in the civil service,” he says plainly; but he adds that the intellectual challenge of the work is enough to attract bright people. “Maybe we don’t see as many [applicants] as a professional services firm because there are some who can’t make the financial constraints, but we have got a very good team.”
I venture that it might help in balancing the core tension in the executive’s mission – between investment returns and broader policy aims – if the unit is not staffed by people solely motivated by money. “I wouldn’t put it quite like that,” the former banker says diplomatically, but he admits that staff must understand that “there are perfectly legitimate objectives for any of these entities other than the creation of value”.
Many people feel this maxim was ignored in the case of CDC, the Department for International Development (DfID)-owned vehicle for investing in businesses in the developing world. Successive reports from auditors and MPs found thatm while CDC was good at getting handsome returns on its investments (and paying its executive team commensurately high salaries and bonuses), it failed at one of its core goals: aligning its work with UK development policy.
Lovegrove is circumspect, but seems to concede that CDC, which was criticised for placing too much emphasis on financial performance and too little on poverty reduction, was overdue a clarification on its central purpose from both its sponsor department and the Shareholder Executive. He insists such issues have now been resolved. “There’s been a huge amount of work done about clarifying the nature of the development objectives; and, following on from that, the nature of the business objectives,” he says. “We are in reasonably good shape as a result.”
So, what of the lucrative disposal of assets promised in the wake of the OEP? Last year’s Budget foresaw roughly £3bn in disposals from central government-owned assets, but the pre-Budget report last November only contained hard plans to sell on a handful, including High Speed One (the company which owns the Channel Tunnel rail link), the Tote, and the student loans portfolio. As Civil Service World went to press, the details of the Budget were unavailable; and Lovegrove is wary of divulging anything dramatic on the progress of the disposals – or, as he prefers to describe them, “crystallisations”.
Whatever progress is reported by the chancellor in the Budget, the whole scheme has not been without controversy. When the plans were initially mooted, Liberal Democrat Treasury spokesman Vince Cable described them as a “car boot sale” of valuable institutions at the worst possible time in market terms. Just for a moment, Lovegrove puts caution aside and dismisses such criticisms. “Firstly, there was no announcement of a mass sale,” he says. “To describe it as such is a mischaracterisation. Secondly, even when we are considering crystallising value from some of these assets, we are acutely conscious of the value-for-money implications of doing either when the market is not strong enough.”
Returning to the personnel question for a moment, he says that having commercially-savvy staff from banking and professional services equips the Shareholder Executive well to judge the state of markets. But as well as having experienced staff in-house, the executive does pay external providers for advice on particular deals – including £4m to UBS for help on the recent sale of British Energy to French giant EDF. This expenditure attracted criticism from MPs on the public accounts committee recently.
On both the specifics of that case – a “very small” fee, he says, in the context of a half-billion-pound transaction – and the broader question of payments to advisers, Lovegrove stoutly defends the executive. “We use professional advisers when we think that by doing so we are going to get a better result for the taxpayer,” he says. “[We don’t] use investment banks or solicitors’ firms or accountants nearly as often as investment banks, solicitors or accountants themselves. We also press down very hard on fees, which we find slightly easier because many of our staff have been on the other side of the table.”
Lovegrove clearly sees himself and his staff rather like poachers-turned-gamekeepers. And while the number and range of creatures for which he’s responsible has been increasing recently, he’s not complaining. In fact, he professes to relish the challenge: “These are just very, very interesting problems that one gets to deal with, and that complexity is attractive.”
Off to market: government assets for sale
The sale of the publicly-owned bookmaker has suffered numerous false starts, but the government hopes to make progress after financial performance figures are published at the end of March
Student Loans portfolio
Legislation was passed to allow the sale of the student loans book in 2008, but the state of the financial sector has made its disposal difficult
At the pre-Budget report, the government claimed the sale process would begin in summer 2010
High Speed 1
Preparations for the Channel Tunnel rail link’s sale are said by the Treasury to be at an advanced stage and will proceed “as soon as practical”
The government is currently “exploring options” for the sale of the UK’s stake in the multi-country nuclear fuel company