December 15, 2010 : Cut the crap: The cuts as profit opportunities
Cut the crap: The cuts as profit opportunities
The Con-Dem coalition government has started to roll out its austerity package and introduce cuts worth £83bn over the next four years, which will hit the poorest hardest and open doors for big business to reap the benefits. But people are fighting back. Over the past few weeks, we have witnessed extraordinary and inspiring protests across the UK. Many of these have had an anti-corporate focus, targeting big businesses that are eager to profit from the cuts and have the government’s ear in policy formation. Here is some information on some of them.
Corporate tax dodgers
Vodafone: You would think that owing the government £6bn in tax, in the middle of an economic crisis, would not be an easy thing to get away with. But this is precisely what Vodafone was able to do this summer. In July 2010, its tax avoidance case was settled with a payment demand of a mere £1.2bn from HMRC. The Vodafone case is a classic example of revolving doors between government and one of the largest UK corporations:
- Vodafone’s Head of Tax, John Connors, worked for HMRC until 2007.
- Vodafone’s finance director, Andy Halford, who was directly involved in the negotiations with HMRC, is a member of George Osborn’s "business forum for competitiveness and tax.”
- Former Vodafone CEO, Sir Christopher Gent, now sits on the ‘Economic Recovery Committee’ chaired by David Cameron and George Osborne and formed to inform Conservative Party economic policy.
The Arcadia Group: Owning almost all of the instantly recognisable brands on the high street, ownership of the Arcadia Group itself is less instantly apparent. Headed by the notorious tycoon Philip Green, the conglomerate is, on paper, owned by his Monaco-resident wife, where virtually nothing is paid in income tax. Philip Green personally dodged a tax bill of £285m after paying himself in 2005 £1.2bn, the biggest pay check in British corporate history, funnelling it through Jersey bank accounts to his wife in Monaco. In August 2010, Philip Green was appointed by David Cameron as the government’s ‘efficiency tsar’. Arcadia Group brands include: Topshop, Topman, Dorothy Perkins, Burton, Miss Selfridge, Evans, Wallis, BHS.
The government’s protection of tax dodgers exposes as vacuous its ‘big society’ rhetoric of shared pain in the face of the cuts. In the face of billions avoided in tax every year, David Cameron's lambasting of ‘benefit fraudsters’ and threatening compulsory workfare carried out by private contractors, such as A4E, housing benefit cuts, raising tuition fees, cutting university funding and EMA, slashing local council budgets and so on, is revealed unavoidably as an ideological programme designed to hurt the poorest whilst the corporates are offered new opportunities for increasing profits, including the opportunity of tax avoidance. The HMRC boss, Dave Hartnett, is promoting an “alternative dispute resolution” system which opts for out-of-court negotiations over a publicly-scrutinised and harder judicial process. Within the current regime, experts in tax avoidance, such as Deloitte’s David Cruickshank, who acted on behalf of Vodafone at Hartnett’s request, help corporate tax avoiders easily off the hook.
Philip Green is not the only corporate brought in to advise the Con-Dem coalition government. There are countless other examples; here are a few.
The infamous Lord Browne, author of the Browne review on high education, which advocated the rise of tuition fees and the interest rate on repayments, is former chief executive of BP. Whilst at BP, Browne oversaw cost-cutting which resulted in major accidents, such as the Texas Refinery explosion in 2005. Although occurring after he had left BP, many argue that the Deepwater Horizon disaster was a result of his policies. He is now a Partner and Managing Director of Riverstone Holdings, a private equity company focused on fossil fuel investments.
One of Nick Clegg’s key advisors is Paul Marshall, founder of hedge fund Marshall Wace, which made an £88.8 million profit in the 18 months up to February 2009 and was tipped as one of the 10 biggest European hedge funds. Paul Marshall is chairman of the Liberal Democrat Business Forum and founded the think-tank CentreForum, which advocates private fees over public funding for higher education.
David Cameron formed the Business Advisory Group in October 2010 to “provide regular, high level advice on critical business and economic issues facing the country.” Members include Dick Olver, chair of BAE Systems; Andrew Witty, CEO of GlaxoSmithKline; Justin King, CEO of Sainsbury’s; Eric Schmidt, chair and CEO of Google; Sam Laidlaw, CEO of Centrica; and Stephen Green, Chair of HSBC.
The cuts: 'opening space' for the private sector to profit
On 18th October, 2010, the Telegraph published a letter titled “Osborne’s cuts will strengthen Britain’s economy by allowing the private sector to generate more jobs.” The letter was signed by the CEO's and chairpersons of 35 companies, urging Osborne to plough ahead with the cuts in the supposedly comforting knowledge that “the private sector should be more than capable of generating additional jobs to replace those lost in the public sector.”
Appearing two days before Osborne’s announcement of the spending review outcomes, the letter appears to be a carefully crafted PR exercise to promote and legitimise the government’s austerity package, devised in collaboration with the Tory party. One of the signatories, Moni Varma, chairman of Veetee (a rice company), slipped up whilst being interviewed on Channel 4 News and mentioned Stanley Fink, Conservative party treasurer, as the person who “asked him to sign” the letter.
An admission of how the austerity package is fundamentally coupled with a programme of privatisation, the letter highlights the government’s subscription to the flawed theory of ‘crowding out.’ In his June budget speech, Osborne described the state as “crowding out private endeavour,” meaning that, with the cutting of government funding to key provisions and services, the private sector will step in to fill the gap, flourishing and supposedly dragging the whole economy up with it. This theory has already been discredited under Thatcher. The privatisation package pushed for in this letter will usher in an age in which big business runs key services in the interests of its own profits, rather than in the interests of the public, with the poorest left out in the cold.
But the private sector will not benevolently ‘fly to the rescue.’ As ever, these companies are greasing their palms on government contracts. And the amount of cross-over between the signatories of the letter and recent palm-greasers is very interesting indeed. Here are a few examples.
BT Group: Two days before publication of the letter, it was announced that, following talks with cabinet office minister Francis Maude, all central government contracts with BT would be renewed. This arrived as fairly surprising news, echoed in a BT share rally, as Philip Green, the tax-dodging tycoon turned government advisor, had earlier described fixed line telecoms as one of the “best example of where the government fails to leverage its scale.” Perhaps Ian Livingston’s signature was provided as a small token of BT’s gratitude to the government for these contracts? The company is certainly getting cosy with the Conservative party: Sir Michael Rake, BT chairman, is a member of the Prime Minister's Business Advisory Group, which is essentially an elite group of 'business leaders' who have gained direct access to the PM and Chancellor.
BT's claim to be “capable of generating additional jobs” has, over the past couple of years, proved to be total bull. With 35,000 jobs cut since 2008, the company has scaled back and not expanded its workforce. BT is far from a ‘bad apple case’, however. The ability of corporations to create jobs, rather than be won over by the temptation to ‘restructure’ in the face of an economic downturn, is slim when the record of those on this list is examined.
Alliance Boots: In October 2010, Boots announced 900 job losses over the next three years. In September 2010, it announced the dissolution of one of the company’s pension schemes, despite seeing a £13m rise in this year’s pre-tax profits. But that’s what happens when your company is owned by a private equity company focused on ‘restructuring’. Kohlberg Kravis Roberts bought Boots for £11bn in 2007.
Marks & Spencer: 1,000 jobs lost in January 2009.
Carphone Warehouse: 450 jobs lost in 2009.
GlaxoSmithKline: 4,000 jobs cut in January
Arup: Cut 20% of its staff over the past year. More recently, a leaked internal email informed staff of a programme of up to 600 redundancies beginning on 6th September 2010, because of “the anticipated improvement in our sector of the UK economy failing to materialise.” The chair of Arup, Philip Dilley, is also a member of the Prime Minister's Business Advisory Group.
Kingfisher: The owner of B&Q, where 1,000 jobs are set to be lost as the DIY chain ‘re-organises.’ 3,000 jobs have already been lost since 2008.
Whitbread: The owner of Premier Inn and Costa Coffee; lost 600 jobs last year.
Yell: 1,300 jobs lost since 2008.
And here is a full list of the 35 signatories:
- Will Adderley, CEO, Dunelm Group (homewares retailer)
- Robert Bensoussan, Chairman, L.K. Bennett (clothing retailer)
- Andy Bond, Chairman, ASDA
- Ian Cheshire, Chief Executive, Kingfisher (owner of B&Q and Screwfix)
- Gerald Corbett, Chairman, SSL International, moneysupermarket.com, Britvic
- Peter Cullum, Executive Chairman, Towergate (an insurance company)
- Tej Dhillon, Chairman and CEO, Dhillon Group (a hotel group)
- Philip Dilley, Chairman, Arup (a design and engineering company. Dilley sits on Cameron’s Business Advisory Group)
- Charles Dunstone, Chairman, Carphone Warehouse Group; Chairman, TalkTalk Telecom Group
- Warren East, CEO, ARM Holdings (technology company)
- Gordon Frazer, Managing Director, Microsoft UK
- Sir Christopher Gent, Non-Executive Chairman, GlaxoSmithKline
- Ben Gordon, Chief Executive, Mothercare
- Anthony Habgood, Chairman, Whitbread (owner of Premier Inn and Costa Coffee); Reed Elsevier
- Aidan Heavey, Chief Executive, Tullow Oil
- Neil Johnson, Chairman, UMECO (aerospace and defence)
- Nick Leslau, Chairman, Prestbury Group (property company)
- Ian Livingston, CEO, BT Group
- Ruby McGregor-Smith, CEO, MITIE Group
- Rick Medlock, CFO, Inmarsat; Non-Executive Director lovefilms.com, The Betting Group
- John Nelson, Chairman, Hammerson (real estate)
- Stefano Pessina, Executive Chairman, Alliance Boots
- Nick Prest, Chairman, AVEVA (engineering technology for oil and gas, mining and chemicals industries)
- Nick Robertson, CEO, ASOS (online clothes retailer)
- Sir Stuart Rose, Chairman, Marks & Spencer
- Tim Steiner, CEO, Ocado (Waitrose)
- Andrew Sukawaty, Chairman and CEO, Inmarsat (satellite company)
- Michael Turner, Executive Chairman, Fuller, Smith and Turner
- Moni Varma, Chairman, Veetee (food manufacturer)
- Paul Walker, Chief Executive, Sage (‘business software and support’)
- Paul Walsh, Chief Executive, Diageo (A drinks business, owning brands such as Smirnoff, Johnnie Walker, Captain Morgan, Baileys, and Guinness. Paul Walsh sits on Cameron’s Business Advisory Group)
- Robert Walters, CEO, Robert Walters (recruitment consultancy)
- Joseph Wan, Chief Executive, Harvey Nichols
- Bob Wigley, Chairman, Expansys (online electronics store), Stonehaven Associates (recruitment firm), Yell Group
- Lord Simon Wolfson, Chief Executive, Next (Lord Wolfson is a Tory Party Peer and member of the Tory Party’s ‘Economic Recovery Committee’, created to inform the party’s economic policy).
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