In the previous two posts we’ve seen May’s bold vision to lead a government that pro-actively intervenes in the economy to prioritise the interests of working class people and tackle inequality. This post looks at some specific areas where the economic system is failing and what plans Theresa May has to improve things.
Workers’ rights and pay
May has said that workers’ rights will be “protected and enhanced” by her government, promising to “review our laws to make sure that, in our modern and flexible economy, people are properly protected at work.” This is a good first step. If she does enact legislation to protect workers she will also need to ensure that laws are actually enforced. Since 2014 some 700 companies have not paid their workers the legal minimum wage, yet only three of these companies have been prosecuted by the government. Around 13000 workers are owed a total of over £3million.
May recognises that workers “don’t always have job security” and “there is an irrational, unhealthy, and growing gap between what these companies pay their workers and what they pay their bosses.” Her suggested solutions so far have included employee (and customer) representation on company boards, the publication of pay-multiple data (the ratio between the company director’s pay and the average worker’s pay), and binding shareholder votes on management pay.
Trade Unions have not been mentioned by May as part of the solution. Historically Trade Unions have negotiated and defended worker’s rights and pay and acted as a counter-balance to the power of employers. Studies have shown that “countries with a higher amount of the labour force in unions have lower levels of inequality.” However in Britain the role and power of trade unions has gradually been eroded over the past 35 years by Conservative government legislation, the latest of which is the 2016 Trade Union Act, part of the Cameron/ May manifesto in fact, that became law a few months ago.
May acknowledges the disproportionate power of company owners (shareholders) and management over workers and customers, and the need to restore some balance of power. She may well have had BHS in mind when she said “shareholders … are not the only people with an interest when firms are sold or closed. Workers have a stake, local communities have a stake, and often the whole country has a stake.”
This is true. However, company law isn’t setup to consider the needs of any groups apart from shareholders.
Company law requires directors to act in the interests of shareholders – it doesn’t require directors to preserve the company for the benefit of employees, BHS or otherwise. In other words, the law requires Green as a director to act in the interests of himself and his wife, as two of the major shareholders.
– Lorraine Talbot, Professor of Company Law in Context, University of York, 12 Aug 2016
The BHS case isn’t the exception, it’s the rule: “What Green did for himself, company directors are doing for other shareholders all the time.”
It was during the economic crises of the 1970s that the primary focus on shareholder profit, or maximising shareholder value (MSV), really began. A practice that has been referred to as “a massive structural flaw” in modern capitalism, where “company executives are effectively employed by investors to deliver wealth to them; a two-way transaction where other beneficiaries [workers, customers, communities] come a distant third.” The increasing market deregulation and weakening of trade unions since 1979 has allowed this corporate power to proceed largely unchallenged.
Instead of companies being viewed as long-term productive organisations creating goods and services for profit, many have come to be viewed simply as assets to be bought and sold to fund short-term profits for shareholders. Sometimes there is no company left at the end of the process, as with BHS.
The traditional defence for the excessive profits of big business has been that they are wealth creators, benefiting us all in the end – so called ‘trickle down economics.’ However all too often the reality is not wealth creation benefitting the many but wealth extraction benefitting the few.
Excess profits are often hidden in tax havens, depriving national governments of tax revenue to provide the infrastructure companies depend upon: transport, technology, and educated workers. Money isn’t ‘trickling down’ to workers or countries. No surprise then that the increase in shareholder profits “correlates with growing inequalities across countries.”
It is this single-minded pursuit of shareholder profit in the absence of counter-balancing forces (regulations and trade unions) that seems to be a key underlying cause of the inequality between businesses and workers. Yet Theresa May’s suggestions so far don’t include any restrictions of shareholder power. Three professors in Company Law/ Corporate Governance from British universities recently suggested five business reforms to encourage a fairer society. The first is to “curtail the legal power of shareholders … and ensure that workers are paid a fair wage by empowering unions.”
Theresa May recently stated that all Conservatives “believe in a low-tax economy” while at the same time putting forward the positive case that “tax is the price we pay for living in a civilised society. No individual and no business, however rich, has succeeded all on their own. Their goods are transported by road, their workers are educated in schools … you have a debt to your fellow citizens and you have a responsibility to pay your taxes.” So low-tax doesn’t mean no tax. How low though? As we’ve seen with Google’s preferential 3% tax rate (instead of 20%), the reality is that corporation tax receipts are so low that very little currently contributes to roads and schools. In fact government subsidies to business can cancel out any tax receipts.
In her conference speech, May took a thinly veiled swipe at former BHS owner Philip Green and his advisors, saying “if you’re a tax-dodger, we’re coming after you. If you’re an accountant, a financial adviser or a middleman who helps people to avoid what they owe to society, we’re coming after you too.” Here she may well have had in mind the big corporates who helped Green on his way: the advisors Goldman Sachs who had “authority without accountability” and the auditors PriceWaterhouseCoopers (PwC) who “due to its fee dependency on BHS … too easily went along with the fiction of financial support for BHS.”
Yet Mrs May remains very quiet about the role of the government in the BHS scandal. Where was the tax office (HMRC) and the Financial Reporting Council (the accountancy regulator)? Could it be that they have “a revolving door with the accountancy profession” and “no independence from the big firms”? Firms like Goldman Sachs and PwC. Theresa May could start by doing something about the revolving door between government and big business to restore some independence and effectiveness to tax authorities and regulators.
Britain’s related islands and territories generously provide the world’s biggest network of tax havens to hide your money in. From the Crown Dependencies of Jersey, Guernsey, and the Isle of Man, to the Overseas Territories of Bermuda, Gibraltar, and the British Virgin Islands. Google use Bermuda. Lady Green (Sir Philip’s wife) prefers Jersey and the British Virgin Islands.
Whether it’s the Green family, Google, their advisors, or the British Virgin Islands, they can all show that they are acting legally within the tax laws set by national governments. Businessman and UKIP donor Arron Banks hides his money in the tax havens of the Isle of Man, Gibraltar, and the British Virgin Islands. He makes his point in plain language:
I don’t give a monkey’s. I live in England. I pay tax in England … My position is: if you don’t like it change the law. Business people will always go for the most efficient thing.
– Arron Banks, 13 October 2016
Naming and shaming legal tax avoiders won’t work. It also misses the point: it’s the government’s tax system that’s failing and needs reform. No easy task, but as May herself said about competition law, “we shouldn’t just complain about it, we shouldn’t say it’s too difficult, we should do something about it.” On tax avoidance however, Theresa May isn’t even talking about the government’s role in regulation, enforcement, and tax havens. At least David Cameron talked about tackling tax avoidance and evasion, holding an anti-corruption summit in April (though the British Virgin Islands didn’t turn up).
Like David Cameron, Theresa May has been a supporter of the neoliberal ideology and economic policies at the root of the inequality issues discussed here, particularly the excessive power of big business and the weakening of workers’ rights, pay, and unions. So it’s ironic that she is the person championing the cause of the people ‘left behind’ and pledging to fix the system. It is welcome nonetheless, and it is this pledge that signals a different approach from her predecessor.
To bring back some counter-balancing forces to the power of big business, Mrs May will need to regulate them (and enforce those regulations) and also empower workers, perhaps even recognising that trade unions have a positive role to play. These ideas run counter to her free-market beliefs, so if she is genuine about helping the working class then she will need to change. It remains to be seen whether she can adapt her thinking enough to reform a failing economic system and tax regime, and reduce inequality.
Theresa May by Foreign and Commonwealth Office, licensed under OGL
TUC by Kaihsu, licensed under CC BY-SA 3.0
BHS store by Cristina Nixau / Shutterstock.com
BVI by Henry A-W, licensed under CC BY-SA 3.0