The question of Labour’s relationship with business, and business’ evaluation of Labour’s competence in financial management, has continued to rumble on all week. It started with the proclamation by Stefano Pessina, Chairman of Boots PLC, that if Labour were elected it would be a ‘catastrophe’ for the British economy. Interestingly, this did Boots’ reputation no good at all, and Labour’s Shadow Business Secretary Chuka Umunna jumped on the fact that Pessina is a tax exile in Monaco who has just moved Boots’ registered headquarters from the UK to Switzerland to reduce its tax bill by £1.1 billion.
It is important that the voice of business is heard during this General Election campaign, not least on Europe. But the British people and British businesses will draw their own conclusions when those who don’t live here, don’t pay tax in this country and lead firms that reportedly avoid making a fair contribution in what they pay purport to know what is in Britain’s best interests.
In fact, Boots’ parent company, Alliance Boots, posted a global tax bill of only £2m last year after George Osborne’s changes in tax regulations allowed it to write off £100m. I don’t remember seeing that hit the headlines, which is quite extraordinary given the supposed commitment of the Coalition Government to reduce the deficit.
There are certainly some big questions to be asked here—though I don’t think Labour is doing a very good job of asking them. Ed Balls’ inability to mention a single business leader who supported Labour was, well, a massive Balls-up. David Cameron seized on his mention of ‘Bill…somebody’ in the Commons: ‘Bill somebody is not a person. Bill somebody is Labour’s policy’.
Later in the week, as the dispute about HSBC in Switzerland emerged, Ed Miliband accused Conservative Stanley Fink of having been a ‘dodgy donor’ who used questionable tax avoidance schemes to reduce his tax bill. Fink made his money as ‘The Godfather’ of hedge funds, and he is a prominent member of the Jewish community as well as a significant philanthropist, as the Jewish Chronicle notes:
He continues to give away a third of his earnings to charities, many of them Jewish. Fink is an important communal benefactor but, while in his politics he stands right of the centre, when it comes to Judaism his beliefs are distinctly Liberal.
Fink and Miliband appear to have called it a draw in the public dispute about Fink’s tax avoidance. But Miliband did not help himself, further back, when he simply forgot to mention the budget deficit in his speech to the Labour Party conference—a quite extraordinary omission.
All this raises a question which few have mentioned: what should the role of business leaders be in influencing voting intentions in the election? Turkeys don’t vote for Christmas, so it is unlikely that any business leader is going to recommended voting for whichever party says it is going to reign in business influence. This immediately raises a basic question about democracy and the distance between political decisions and popular opinion. There are some sobering facts to consider here.
First is that real average wages have stayed flat since 2007, the longest period of stagnation since 1874. At the same time, the super-rich have continued to get richer. In particular, business executives have seen their pay spiral; since the 1990s, executive pay has moved from being around 60 times that of the average worker to almost 180 times it by last year.
The second is that government policy appears to have been toothless to force businesses who make enormous trading profits in the UK, by means of sales of goods in the UK despatched to customers in the UK, to actually pay tax in the UK. Amazon and Starbucks have been the best-known examples, but Boots has now clearly joined the tax-avoiding club.
The third is the way that largely unelected ‘troika‘ of the EU Commission, the IMF and the European Central Bank are determining austerity policies around Europe. Greece’s debt has recently reduced in real terms, but has gone from being 127% of its GDP to an eye-watering 176% of GDP; on that important measure, Greece’s debt problem is worse today than it was when it was rescued, and entirely the result of externally-imposed conditions. This wouldn’t be so startling if it weren’t for the fact that there is an obvious and successful alternative approach—the one that Iceland took. Iceland’s President Ólafur Ragnar Grímsson explains:
I think the primary reason is that we were wise enough to realise this was also a fundamental social and political crisis, but overall we didn’t follow the traditional prevailing orthodoxies of the western world of the last 30 years.
We introduced currency controls, we let the banks fail, we provided support for the poor, we didn’t introduce austerity measures of the scale you are seeing here in Europe… and the end result four years later is that Iceland is enjoying progress and recovery very differently from the other European countries that suffered from the financial crisis.
All this suggests that the significant influence that business has over politics has not worked in the best interests of society as a whole. This in turn implies that business intervention in elections contributes to, rather than lessens, the democratic deficit we are experiencing—a problem which (following the failed attempt to move to PR some years ago) continues to be ignored. As Johann Hari pointed out then:
In Britain today, we have a centre-left majority who want this to be a country with European-level taxes, European-standard public services and European-level equality. We have had this for a very long time. Even at the height of Thatcherism, 56 percent of people voted for parties committed to higher taxes and higher spending. But the centre-left vote is split between several parties – while the right-wing vote clusters around the Conservatives. So under FPTP they get to rule and dominate out of all proportion to their actual support, and drag most of us in a direction we don’t want to go.
It might just be that the rise of UKIP changes this situation, as it could split the right-leaning vote and make the election result a little more representative of the views of the electorate. And the SNP has now tabled an alternative approach to deficit reduction, which opens more options.
There is no doubt that party policies will have implications for the economy, and that we need to take these seriously, alongside a raft of other considerations. But when business leaders support one party over another, we can be confident of one thing: they are doing so to protect their own interests, and not the interests of democracy. We should probably take no notice.
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