Posted by: cjenscook | 05/01/2009

Making a Mint

Alastair Darling’s recent decision to leave no public asset unsold, and in particular, to flog off the Royal Mint at Llantrisant, is raising something of a storm in Wales.

Plaid Cymru AM Leanne Wood said: “This decision is totally unacceptable. Privatisation is not what the Assembly wants, it’s not what the workers or the unions want, it’s not what the community wants and it’s not what Wales wants. Plaid Cymru calls on Alistair Darling to reverse this decision – and to ensure that the Mint remains in the public sector.”

Ms Wood shares Mr Darling’s mistaken assumption that there are two mutually exclusive alternatives: Public or Private. In Scotland, however, there are not only three verdicts: Guilty, Not Guilty and Not Proven, but there is also a new enterprise model based upon imaginative use of a simple but radical legal form, the UK Limited Liability Partnership (LLP) introduced in 2001. The City of Glasgow, for instance, is now a member of four municipal LLPs providing services as diverse as building services, car parking, markets and IT, but all of them conventionally financed.

I have been working with the Nordic Enterprise Trust, which is a Scottish social enterprise which was part-funded by Innovation Norway. We have extended this LLP model to enable investment in public assets in a way which does not involve selling off either ownership or control.

A Royal Mint Partnership

The Royal Mint Partnership is not an organisation, but an agreement within an LLP corporate “wrapper”. That is to say, it will not own anything, employ anyone, or contract with anyone, other than perhaps customers. Its member stake-holders will essentially agree among themselves who does what, and what they receive in return.

Firstly, while the Treasury could be the Custodian who owns the physical assets, it would probably make more sense for the Welsh government to become the steward of assets on Welsh soil.

Secondly, rather than the usual management privatisation gravy train, we might learn a lesson from the John Lewis Partnership or from the strongly unionised miners at Tower Colliery. This could be done by transferring to the staff all the shares in the proposed Company, which would then be the Manager member of the partnership and would share proportionally in the partnership revenues.

Alchemy

The alchemy which enables us to keep the Treasury and virtually everyone else happy is our ability to bring in investors as Capital Partners sharing in the gross revenues from the Mint’s customers current and future. This can be done simply by creating proportional (% age) shares or Units such as millionths. These shares/Units have no par value, and while they may be bought, sold or split into smaller fractions, they cannot be redeemed, since there must always be 100%.

Investors

Why would an investor be interested? Ask the Canadians or the Australians, where Companies listed on the stock exchange routinely put part of their gross revenues into trust, and then raised finance by selling off to investors the resulting Units in “Income Trusts” and “Royalty Trusts”. Investors could not get enough of these Units, for the simple reason that they were getting their hands on the revenues before the management did, rather than afterwards.

Unfortunately, the tax-man cracked down in both Australia and Canada, and for similar reasons neither Income Trusts nor LLPs currently enjoy pension tax privileges in the UK. So this Capital Partnership model has not been widely attempted, although there is an example of a >£1bn UK Capital Partnership involving hotels, but without unitisation into “bite-sized” Units.

If not UK pension investors, then who? Firstly, there are plenty of other UK investors looking for a low risk investment, and priority could be given to Welsh investors. Secondly, the Mint’s customers might be interested in taking a stake in their supplier, and could offset their income against their purchases. Finally, the world is awash in capital looking for good quality low risk investments. Moreover, much of this capital is seeking Islamically sound investment, and since Islamic finance is essentially based upon partnership, this investment would be ideal.

It’s not Rocket Science

In this model, everyone is on the same side. If the Manager makes savings then these are shared in exactly the same proportion as was initially agreed. If new capital is necessary, then the Investors share the increased revenues proportionally with the Manager responsible for putting it to good use, and existing Investors simply have a smaller piece of a bigger Pie.

The Royal Mint stays in public ownership and stewardship – as it should – while the Treasury will probably raise more money than it ever could by selling off the Mint in the conventional and deeply dysfunctional way to predatory investors, typically aided and abetted by management with an eye to the usual eye-watering returns bearing little relationship to the risk actually taken.

The same partnership mechanism is equally valid for the Royal Mail and all the other public assets now to be sold off at fire sale prices.

It’s not Rocket Science. Why sell ownership, when you can simply sell revenues?

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