Privileged City investors were given a "golden ticket" to buy Royal Mail shares and then sold them on day one of privatisation, ripping off the taxpayer Ed Miliband has claimed.
Speaking at Prime Minister's Questions, the Labour leader challenged David Cameron to explain how the firms had become involved and why they were allowed to sell immediately when postal workers had to wait three years.
The Prime Minister insisted the privatisation of Royal Mail had been a success and said Mr Miliband was reading from the "same old Labour" script.
Mr Miliband referred to reports yesterday naming some of the institutional investors, and ask ed: "How were these lucky few chosen?"
Mr Cameron replied: "What we are talking about is an exercise in privatising the Royal Mail, which has been a success for our country.
"A business that lost £1 billion under Labour has now paid money back to the taxpayer, is making profits and the people we should be praising are the 140,000 employees of Royal Mail who are now under this Government shareholders in the business they work for."
Mr Miliband said: "No answer to the question. The Royal Mail share price is currently 50% above the level it was sold at. Only you would want congratulations for losing the taxpayer £1 billion.
"Now, each of these chosen few investors were given on average 18 times more shares than other bidders on the basis, in the National Audit Office's words, they would provide a stable, long-term shareholder base.
"Can you tell us what assurances in return for their golden ticket these investors gave us, that they would hold the shares for the long term?"
Mr Cameron said: "You say people were given shares - they paid for shares. Second, you raise again this issue there was some sort of agreement, there was no agreement.
"But at the end of the day, you should be recognising that a business that lost money, that you tried in government to privatise but failed, is now in the private sector, making money, succeeding for our country and its employees are now shareholders.
"Isn't it interesting that with the growth in our economy, the fall in unemployment, the reduction in the deficit, you are reduced like old Labour to complaining about a successful privatisation."
Mr Miliband insisted he was "raising an issue about the rip-off of the taxpayer which the British people know when they see it".
"The reason this matters is because the sale was grossly undervalued - shares sold for £1.7 billion at privatisation are now worth £2.7 billion," Mr Miliband said.
"And who cashed in? Twelve of the 16 so-called long-term investors made a killing worth hundreds of millions of pounds within weeks.
"Yesterday, the representative of the bank that sold the shares said there was an understanding 'with those investors... about their long-term commitment to Royal Mail'. So why were they allowed to make a fast buck?"
Mr Cameron replied: "We are getting lectures on taxpayer value from the people that sold our nation's gold at the bottom of the market. You talk about ripping off the taxpayer when it was you who left an 11% budget deficit after the biggest banking bailout in Britain's history.
"I have to say, these are exactly the arguments that Michael Foot made about the privatisation of the National Freight Corporation. They are exactly the same arguments as Neil Kinnock made about British Telecom and British Airways.
"It pleases the backbenchers, it excites the trade unions but it is utterly, utterly meaningless. Are you re-committing to re-nationalising the Post Office? No. Of course not. It's just playing to the gallery because you can't talk about the success of our economy."
Mr Miliband highlighted comments by Tory MP Brian Binley (Northampton South), who has been a stern critic of the privatisation as "unethical and immoral".
And the Labour leader said: "You talk a lot about the postal workers... there were no conditions on the hedge funds but there were conditions on other groups, like the postal workers.
"Can you explain why postal workers were told they couldn't sell their shares for three years but hedge funds were told they could cash in on day one?"
Mr Cameron rebutted: "The post office workers were given their shares. It is right they were given their shares, and let's celebrate the popular capitalism. I thought you believed in empowering workers - we have now got 140,000 workers who got those shares."
Speaker John Bercow then intervened to calm Labour MP Fiona MacTaggart from shouting, telling the Slough MP: "You are an illustrious product of the Cheltenham Ladies' College. I cannot believe they taught you there to behave like that."
Amid raucous scenes, Mr Cameron took the opportunity to joke: "Mr Speaker, you're right. There is a lot of history in this shouting because, of course, in the past with all these privatisations we had the shouting of the Kinnocks, the shouting of the Prescotts, the shouting of the Straws.
"Over Easter, I was looking at Labour's candidates - and son Kinnock is coming here, son of Straw wants to get here, son of Prescott wants to come here.
"It's the same families with the same message, it is literally the same old Labour. That is what is happening."
Returning to the subject of the joust, the Prime Minister said the NAO said privatisation had reduced taxpayer risk to the universal postal service.
"This is a good deal for taxpayers because this business was losing a billion. It is now making money, paying taxes, gaining in value - good for our country but bad for Labour."
Mr Miliband said it was "one rule for the postal workers and another rule for the hedge funds", joking that Chancellor George Osborne's best man had run the hedge funds.
"It's one rule if you deliver the Chancellor's best man speech and another if you deliver the Chancellor's post," Mr Miliband said.
Mr Cameron replied the Labour leader could not talk about economic success and only "paint himself into the red corner".
Launching his final salvo, Mr Miliband said: "What we know is there a cost of living crisis in this country ... because they stand up for the wrong people.
"The more we know about this privatisation, the bigger the fiasco it is. A national asset sold at a knockdown price, a sweetheart deal for the City and the Government totally bungled the sale. Everything about this privatisation stinks."
Mr Cameron said: "Six questions and not a mention of GDP. Not a mention of what happened while we were away in terms of employment. Not a mention of the fact the deficit is getting better.
"We know he has a new adviser from America, Mr (David) Axelrod. We know what he is being advised to say ... he says there is a better future ahead of us but we must not go backwards to the policies that put us in this mess in the first place."
Speaking after the session, a senior Labour source said the Prime Minister's claim that there was "no agreement" with the preferred investors contradicted evidence from William Rucker, chief executive of Lazards, who yesterday told the Commons Business Committee: "There was an understanding the company may be subject to considerable volatility and their intention was to remain invested in the company until such a point where the share price exceeded that which they believed was the fundamental value of the company."
"They can't both be telling the truth," said the Labour source.
"We need to know what the agreement was, who it was with, why they did it and why the taxpayer was shortchanged."