THE WEALTH gap in Britain is widening rapidly. The most noticeable gainers have been the owners of big companies and their ‘fat cat’ top executives (themselves usually top shareholders), who are getting elephantiasis of the wallet while workers’ real wages and benefits are declining. ROGER SHRIVES asks:
What can we do about the ‘fat cats?’
BRITAIN NOW has its biggest wealth gap between the richest and the poorest since the dying embers of Thatcher’s rule back in 1990. The top companies aim to keep it that way.
HSBC bank is giving its top director William Aldinger a $58 million (£37 million) package, making him Britain’s highest-paid executive. It includes $20 million compensation plus free dental and medical treatment for life if he gets the boot.
Office cleaner Abdul Durrant put this greed in context, when he stood up at HSBC’s recent AGM and asked if cleaners at the bank’s London headquarters could be paid more than £5 an hour, which was not enough to live on.
Pharmaceutical multinational GlaxoSmithKline (GSK) offered their chief executive Jean-Pierre Garnier a new pay deal where he’d get £22 million compensation if he loses his £5 million a year job.
Britain’s 100 biggest companies paid their chief executives (CEOs) pay and pension deals averaging £1.73 million last year – a big increase even though the stock market, which they usually use to excuse their obscene wealth, fell by a quarter.
Rewards for fat cats come in many forms – the top people’s biggest perks are huge pension ‘pots’. Lord Browne of British Petroleum has a pension which is already worth £860,000 a year on top of his £3 million salary package. He retires in six years time when it could be nearer his £1.3 million basic salary.
Brian Moffat, former chair of Corus steel makers, who sacked more than 10,000 workers saying “we make money not steel”, received £300,000 in pension contributions. Many workers lost their old final-salary pension schemes because the Moffats of the world thought it too expensive.
“Greedy clots”
SUCH BLATANT capitalist greed infuriates workers, particularly those whose jobs are on the line through recession and those who are paid poverty wages.
This anger is forcing even the TUC to mount a campaign. Outgoing general secretary John Monks, exponent of the failed policy of “partnership” between unions and bosses, said: “You don’t have to be a Marxist to see the internal contradiction [of the wealth gap]… Some people look at me pretty ironically when they see the behaviour of these greedy clots.”
Monks’ successor Brendan Barber suggests approaching HSBC’s pension fund trustees and shareholders to ask them to vote against Aldinger’s “platinum parachute”.
Barber’s musings tie in with his comments that almost half the shares in British companies are held by institutional investors – pension funds and insurance companies – so the unions should put pressure on them to use that investment power to influence capitalism.
But pension funds are just big shareholders, who invest in businesses for profit. Even if trustees listened to the unions and opposed fat-cat wages, they’d be hard pressed to get their views accepted by profit-hungry shareholders.
Even those ‘revolting’ shareholders at the GSK AGM weren’t fighting for a better deal for working class people or the world’s poor. Most shareholders’ complaints are about high pay which disregards falling profits – people like BT’s new chief executive Ben Verwaayen, who gets £3 million a year in pay and bonuses despite profits crumbling. They don’t mind executives living high on the hog provided they’re up there with them.
Trade and industry secretary Patricia Hewitt is starting ‘consulting’ big business on legislation to curb fat-cat pay, saying that a few rotten apples were “feeding prejudice against all business people.”
Capitalists, however, talk about “putting their own house in order” with ‘voluntary curbs’ on high pay – these are big business’s equivalents of verbal contracts. And as film mogul Sam Goldwyn once said: “Verbal contracts aren’t worth the paper they’re printed on.”
Shareholder pressure has made some US giants such as General Electric, whose profits were dropping, phase out their most extreme top salary and pensions deals.
But how can workers leave it up to the bosses to ‘play fair’? Calling on shareholders to restrain executive pay will get nowhere. However, if Brendan Barber were to call for strike action against the employers’ behaviour on pay and pensions, he might have a lot more effect.
Tax fiddles
MANY PEOPLE want action, at least to make the super-rich pay for services which try to clean up the mess their system has caused. The tax system has become grossly unequal.
After years of regressive taxation, which hits the poorest hardest, the richest 20% of households pay a total tax bill of just 34.2% of their incomes while the lowest-income groups were paying out 41.7% in tax. New Labour’s six years in office have reduced taxes on big business. Many rich individuals and companies pay little or no tax.
The demands people raise range from marginal tax rises to wealth taxes. But the problem with all attempts at imposing new taxation is that whole industries are devoted to avoiding it. There are hundreds of hidden methods.
US fuel giant and Bush’s financial backer Enron, which collapsed last year, paid no federal income tax from 1996-1999 and only token amounts in other years. Big names in banking and accounting – Arthur Andersen, Deloitte and Touche, Chase Manhattan, Bankers Trust and Deutsche Bank – helped draw up $2 billion worth of tax avoidance schemes.
Enron set up many partnerships, nominally separate from Enron but controlled by them. Registered in off-shore tax-havens, Enron’s bosses avoided Washington-imposed taxes and hid their huge debts.
Steps to privatisation
BRITISH COMPANIES used similar methods in a recent scandal involving Britain’s tax and duty collectors, Inland Revenue and Customs and Excise. In 2001, these tax gatherers sold more than 600 of their offices – to tax avoiders based in a tax haven!
This deal was set up under a Private Finance Initiative (PFI) arrangement with Mapely, a property firm with a penchant, encouraged by the government, for snapping up government buildings. Mapely moved ownership of 200 of these tax and duty-collecting properties ‘offshore’, into a Bermuda-based sister company, Mapely Steps. Steps stands for Strategic Transfer of the Estate to the Private Sector – the ‘estate’ was Inland Revenue and Customs and Excise.
As that sister company is registered outside the UK, it’s not liable to capital gains tax if it sells any of these properties – Bermuda taxes neither profits nor capital gains. Mapely Steps undoubtedly made a lot of money out of this.
Mapely even avoided paying tax on rent received on these properties. It borrowed enough money to boost its tax-deductible interest expenses enough to reduce its taxable profits to nothing. This is easier for offshore companies than for British-based firms, which usually pay tax on some profits.
Different companies with similar names confused public scrutiny – Inland Revenue claimed that the purchasing company was British-based and subject to British taxation. Commons Treasury select committee chairman Michael Fallon called this “one of the worst examples of maladministration we have come across”.
Despite all these perks Mapely hit financial trouble last year but an Inland Revenue director gave the company “letters of comfort”, assuring twitchy investors that more government money was on its way from the taxpayer. This kept them solvent.
The original deal was struck to save Inland Revenue some £20 million in maintaining properties. But how many millions did they lose in revenue at the same time? Government ministers and top civil servants seem prepared to do anything to defend PFI deals even if they’re with tax-dodging bankrupts.
Public ownership
UNDER CAPITALISM a democratic, egalitarian tax system is impossible. It’s not just that the tops of the civil service are class allies, old school chums etc. of the owners of big business, landowners etc. Today when employers are desperate to ditch workers’ previous gains, they share the same pro-‘free market’ pro-PFI, anti-taxation ideology as well.
Sir Nicholas Montagu, chair of Inland Revenue, was a career civil servant mainly responsible for privatising Railtrack. Customs and Excise chairman, Richard Broadbent, who recently announced his retirement, came from Schroders investment bank which made a packet out of the Tory privatisation binge in the 1980s.
Such people tend to favour the rich and their schemes. Many advisers move from private bank to government or from advising government on privatisation to private firms.
Enron’s “advisers” Arthur Andersen and Deloitte and Touche, representing the Mapely ’empire’ and the Inland Revenue respectively, made themselves even richer with advice on tax matters.
All these scams secured a deal which took public buildings permanently out of the public sphere. Then when the ‘normal’ workings of capitalism pushed the Mapely concerns near to bankruptcy, Inland Revenue falsified their accounts and gave their letters of comfort.
Civil service union PCS quite rightly demand that Inland Revenue and Customs’ ‘estate’ is brought back into public ownership and that taxpayers don’t have to bail out the firm.
Bermuda isn’t the only ‘offshore tax haven’ – Switzerland runs the world’s biggest ‘offshore’ operation, not bad for a totally landlocked country!
Some fear this scheme sponsors money-laundering and finances terrorists. Big business interests, though, oppose any moves that would make Switzerland amend its banking secrecy laws to give information about earnings and tax liabilities.
Capitalist inequality
UNFORTUNATELY TAXING the rich and big business, without putting an end to capitalism, can’t stop the fat cats’ jamboree or end poverty and inequality permanently.
The capitalist class will resist paying higher taxes on their personal wealth or that of their businesses – they even threaten to remove funds from the economy in a ‘strike of capital’.
The Socialist Party supports all calls for greater equality. We would back a trade union-led fight by low-paid workers to get a decent national minimum wage of at least £320 a week.
We support any measures which make the rich pay through more progressive taxation (where the rich pay more than the workers and middle class). We support increasing corporation tax on big business, putting up personal tax rates for the rich and we’d fight for a wealth tax. But we also fight to overthrow capitalism and to build a socialist society.
Even if we could overcome the rich non-payers’ dirty tricks, taxation measures on their own can’t lift millions of people out of poverty and leave enough for increased funding for decent public services and benefits.
What we fight for
We fight for a socialist plan of economic production that would begin by bringing into public ownership the huge multinationals that dominate the economy, under the democratic control and management of the working class.
Big business has accumulated vast wealth – a few years ago it was calculated that Britain’s 1,000 wealthiest men and women had over £108 billion stashed away. About the same number control, through their directorships, companies worth £1 trillion (£1,000 billion).
Capitalism wastes most of this wealth. A socialist plan could use these riches to fund a massive programme of public investment to ensure that ordinary people in Britain can get jobs and decent living conditions, including a greatly increased minimum wage and decent benefits.
Fat-cat pay is a symptom of an unjust, wasteful capitalist system which also produces terrible poverty in the midst of wealth all round the world. We’re fighting for a socialist alternative that will take society out of the hands of capitalists, financiers and landowners and run it to meet people’s needs – join our fight.
