Tag: Wealth

Carillion; Corporatism and the Establishment Racketeers

Tax Dodgers

A series of delusional characters maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong

Rachel Reeves MP and Frank Field MP following evidence given by former Carillion executives

The collapse of Carillion has revealed the ways in which members of the British establishment work to the detriment of its citizens. Intriguingly, some of these racketeers have even campaigned hard for Brexit while their commercial activities have served to undermine a major British company, putting at risk the jobs and services of millions of Britons!

The collapse also highlighted the dangers inherent in the control of large sectors of state activity by powerful private interest groups. It is clear that the company borrowed heavily whilst aggressively grabbing more and more contracts in a bid to squeeze competition out of the marketplace.

The situation culminated in a company which we are told was ‘too big to fail’. But this claim implies that we are left with no option but to help it out in some way. As with the banks, this should ring alarm bells; moreover the Government is complicit in creating these unaccountable behemoths which can hold a gun to the heads of taxpayers. It would seem that some of the biggest losers will be small businesses providing valuable employment and services which are often operating on narrow margins.

The Public Finance Initiative artful tax dodgers

The whole issue of Corporatism and the dangers it presents is now, thankfully, a matter of public debate. But in this post I want to look more closely at the activities of Carillion and the financial casino system which has become a corrosive part of the economy.

Let’s start with the selling of PFI contracts. The debate around corporatism has focussed around Private Finance Initiatives (PFI) and the enormous drag they are now having on our public services. What is less well known is that PFI contracts can be traded in the same way as other assets. So even if the Government has good reason for allocating a contract to a particular company it cannot be sure that the contract will not be sold on to someone else. This is exactly what Carillion has done and (surprise, surprise) involves tax dodging.

According to analysis by the European Services Strategy Unit (ESSU), Carillion made £500m from selling PFI projects, the most profitable being the sales of three NHS hospital buildings in Staffordshire, Swindon and Glasgow in 2007. These netted Carillion a 38.7 per cent annual return, Several of the purchasers are based offshore meaning they pay no UK corporation tax on the profits they derive from the schemes, which are ultimately paid for by all of us. An article in The Independent Newspaper pointed out that:

Several projects were bought by Secondary Market Infrastructure Fund and Land Securities Trillium, both of which are earlier names for what is now Semperian, a company based in Jersey and part-owned by the Daily Mail Senior Executives Pension Fund.[My italics]

Equitix, which also bought PFI projects from Carillion, was previously based in the UK but has now been sold to offshore funds.

Just to be clear about this, executives from the Daily Mail are benefitting from a company receiving public money but pay no UK tax on the profits.

What links Elizabeth Windsor’s banker to schools in East Dumbartonshire?

Though not related to Carillion it is instructive to consider the East Dunbartonshire Schools PFI project. This contract is currently half owned by Innisfree Nominees Ltd, which is in turn owned by Innisfree Group Ltd. The main shareholders in this firm is Jersey based Coutts and Co Trustees (Jersey) Ltd, and a part of the taxpayer-owned Royal Bank of Scotland group. Coutts is the bank used by the Queen. Moreover as the Scottish Herald points out:

Coutts, whose chairman is Tory peer Lord Waldegrave, was named recently in the leaked Panama papers for asking offshore law firm Mosack Fonseca to set up almost 500 offshore companies for its clients.

Semperian PPP Holdings, which has a parent company also registered in Jersey, holds the other 50% stake in this project, which built six new schools in East Dunbartonshire including Bearsden Academy, Douglas Academy and Bishopbriggs Academy.

Semperian again! But it is hardly surprising since they now own many PFI contracts. So Daily Mail executives, the Conservative party chairman and peer of the realm and Elizabeth Windsor’s bankers. What a cabal!! But that’s not all, lets look at a side issue of the Carillion collapse involving hedge funds.

A hedge fund is an investment vehicle, often administered by a company. Amongst its socially useless activities is what is known as short selling where fund managers gamble that a company’s share price on the stock market will fall. As this Guardian article reports:

The biggest winner from July’s share price crash was hedge fund Marshall Wace, whose co-founder Sir Paul Marshall was a major backer of the leave campaign in the Brexit referendum.

Another institution that took out big bets on Carillion’s downfall is BlackRock, the US-based investment institution that hired former chancellor George Osborne as an adviser last year, on a £650,000 salary.

Marshall was actually employed by the Government and was a board member at the Department of Education (yet another one – how big is this ‘board’). Given a knighthood for services to charity and education he has been busy making money out of the collapse of a major British Company. That should improve the ‘educational outcomes’ for the children of laid off workers no end!

We should also mention his long association with leading Liberal Democrats (until he became a Brexiteer), co-authoring the Orange Book which advocated choice and competition. No wonder the LibDems jumped into power with the Conservatives in 2010!

If we look past the superficial aspects of the Carillion collapse we find the vultures of the British establishment syphoning off public money for their own gain or betting on the collapse of major companies, making money out of misery. Whether the Carillion executives are delusional or not, the company was both perpetrator and victim. But this just shows the closely interconnected nature of the problems we face ending this disgusting charade.

Forget Harmless Eccentricity, the Aristocracy Still Wields Enormous Unaccountable Power

Monarchy and aristocracy are often considered as a single entity by the British public, whether positively or negatively.  Yet they are two very different animals.  Aristocrats have a love-hate relationship with the monarchy. They hate it because it has historically been a rival for power, privilege and wealth.  In fact many aristocrats have been republicans and that remains so today, though their vision for a republic is slightly different to mine! Conversely, the aristocracy love monarchy as it takes the high profile flak and provides ‘top cover’ for their activities in return for a little bit of pomp and dressing up a few times a year.

Though not being a fan of the City A.M. publication, often finding its articles superficial, one feature published last week nevertheless demonstrated the point about the continuing power of aristocracy. Writing about the vast areas of London owned by a few very old families it stated:

This select group has several significant players. The Grosvenor Estate, owned by the Duke of Westminster, manages Mayfair and Belgravia; the Cadogan Estate, owned by the Earl Cadogan, has Chelsea; the Portman Estate, owned by Viscount Portman includes fashionable Chiltern Street north of Oxford Steet (sic); while the Howard de Walden Estate, owned by the Howard de Walden family, is its neighbour on nearby Marylebone High Street.

I blogged about the Duke of Westminster tax rouse on his Grosvenor Estate when considering the undemocratic nature of investment ptential in Britain. As might be imagined, the aristocrats have their own lackey supporters for this state of affairs who cite ‘long term stewardship’ and ‘tasteful development’ as justification. But let’s look more closely at this 21st Century version of feudalism.

Continue reading “Forget Harmless Eccentricity, the Aristocracy Still Wields Enormous Unaccountable Power” →

Crown, not Crown; The Duke of Lancaster Is Not What He Seems!

DucyLancsThe Duchy of Lancaster is what is known as a Corporation Sole or a corporation with a single person as beneficiary. That person is the Duke of Lancaster, none other than Elizabeth Windsor; but gender is the least important ambiguity we shall encounter. The Duchy is also a County Palatine which means it can exercise powers normally reserved to the Government.  Herein lies the problem.

Where There’s No Will There’s a Way!

It is a fundamental of English law that all property must have an owner.  But occasionally it happens that no title can be established for property, for example when a person dies with no family and not having made a will. Then it is the duty of the Crown (Government) to dispose of the assets.  This normally means selling off the asset and passing the proceeds to the Treasury.  That is unless you die on land owned by the Duchy of Lancaster (or the Duchy of Cornwall, controlled by the Duke of Cornwall, Charles Windsor). Then your property becomes their property (known as Bona Vacantia). The Duchy’s own site describes it thus:

Whatever remains undistributed from a person’s estate is the property of The Queen in Right of Her Duchy. Gifts may be made, on the Chancellor of the Duchy of Lancaster’s authority, to those who might reasonably have expected to benefit on a deceased’s death. 

The Chancellor of the Duchy of Lancaster is someone I shall return to in due course! The proceeds of bona vacantia are then distributed to charity which sounds fine.  But remember that the Duchy of Cornwall has the same arrangement and Charles Windsor has been known to give money to his old school chums the exclusive Gordonstoun! Some charity!

Hedge Funds, Interest Swaps and Property Investment

I have blogged before about the disingenuous myth promoted by Buckingham Palace that Elizabeth Windsor is politically neutral. Most certainly this applies to the Duchy of Lancaster which feeds her personal wealth and is anything but neutral.  The public image of the Duchy is one of cosy tradition with picturesque images of such assets as castles, hillsides where smiling farmers tend their flocks and babbling brooks feeding placid lakes. But the reality is very different  and it is worth taking a look at just one aspect of the Duchy’s activities.  Along with an analysis of Hedge Funds and Interest Rate Swap dealings the 2016-17 Report and Accounts mentions:

The portfolio, acquired in September 2016 for £34.25m, comprises four distribution warehouses (Basingstoke, Harlow, Redditch, Alcester) and one industrial estate in Swindon. The Duchy of Lancaster has been steadily building its distribution warehouse network in recent years, acquiring Wardley Industrial Estate in Greater Manchester in 2015 and both Estuary Commerce Park in Speke, Liverpool and Units A and B at Walker Park, Blackburn in 2014.

Bear in mind that this is only one small part of a corporation with over £600 million of assets, But note that unlike a commercial investment and property company the Duchy is not subject to Corporation Tax. In an arrangement which is available to few other individuals Elizabeth Windsor is allowed to voluntarily pay (she has a ‘Memorandum of Understanding’ with the Treasury) income tax on her earnings from the Duchy, though how much she actually pays remains secret.  Moreover, it also means that changes in the laws governing warehouses and the employees are of direct interest to the Duchy and may affect its profits. Areas such as health and safety, customs, food storage regulation and planning permission are all relevant, to name but a few. Because of secrecy we are not allowed to discover whether these issues come up in conversation between Windsor and Prime Minister.

Throw in a Murky Chancellor, a spot of Tax Dodging and Secrecy!

The quasi public/private nature of the Duchy of Lancaster highlights much that is wrong with our system. The Duchy exists to provide a personal income for the Sovereign from which Elizabeth Windsor personally benefits.. Yet as a Palatine it takes on various rights and responsibilities of Government. For example, It has its own ‘Attorney General’  the law officer of ‘the Crown’

Continue reading “Crown, not Crown; The Duke of Lancaster Is Not What He Seems!” →

BBC Salaries – The ‘Market Rate’ Argument Is Again Deployed To Defend Greed and Discrimination.

The grotesque salaries paid to BBC presenters including  more than £2.2m to Chris Evans who flopped as a Top Gear presenter (in an echo of banker-like huge rewards for failure) and Gary Lineker at over £1.75m has focussed attention on what is fair reward in an age of austerity.  The eye-catching issue is the gender pay gap which has, rightly, prompted a public outcry and a legal case. But I want to consider a broader aspect of this issue which necessarily impacts the gender inequality and illustrates a number of problems with our broken socio-economic model.

I want to focus on a tired old excuse that has been trotted out once again.  This time the culprit was Today presenter John Humphrys.  Now, to be fair to Mr Humphrys, he was prepared to be interviewed about the salary scandal, unlike some other presenters who mumbled incoherently as they pushed past journalists. Nevertheless the answer was depressingly familiar. ‘Its the market rate’! He said:

I cant explain it but I’ve been with the BBC a long time and its gone up and up and up. I’ve no idea whether I am worth it. However we operate in a market place and I think its difficult for the BBC, Society sets these rules.

But we must ask what is the market in this case?  White male radio presenters able to get up early and ask ill-informed and sometimes ill-judged questions (I heard the Konta interview)? The BBC must remember that it is entering the ‘market’ on our behalf while at the same time itself distorting the market by doing so. Moreover, who defines what ‘the market’ is and what constitutes good value in this market. Would it be white middle-class men?

The real problem is that Humphrys then goes on to contadict this ‘market rate’ defence by saying that, aside from two occasions when they actually cut his salary (so goodness knows what is was before!), the BBC have been simply pushing up his salary since he joined 50 years ago.  Start with £2k and after a while no one notices the gigantic payment. So less ‘market rates’ and more ‘mates rates’!. As with banking and other senior jobs the market place argument is an attempt to deceive, to imply a commercial rigour which simply does not exist! But Humphrys does have one point.  It is the senior managers of the BBC who must be held accountable for these salaries.

Once again market rates are justified in grossly inflating the salaries of the already wealthy and powerful while justifying oppressing those less well-off with little influence. The ‘market rate’ argument is curiously rejected for teachers and nurses who are leaving their profession in droves.  I am in favour of the BBC. I consider that there is a place for a medium which is not dependant upon commercial interests. But the needs to be a radical reform of the BBC, just as there needs to be a radical reform of private sector corporate governance.  What has been revealed at the BBC must also be revealed in the commercial world.

Being Lectured by Beneficiaries of Inherited Wealth is Bad Enough, but the Hypocrisy is Worse!

We are constantly lectured by people who live with the advantage of signifiant inherited wealth.  There was George Osborne telling us how we needed austerity to make everything well again in the economy, Ian Duncan Smith saying how disabled and other vulnerable folk needed to be ‘encouraged’ or ‘incentivised’ back to work and Jacob Rees-Mogg banging on about how the Victorians would not have stood for all this welfare nonsense, They extol the virtues of hard work, thrift and standing on your own two feet while easing back on significant assets culled from someone else’s hard work which was simply handed down to them.

I am assuming the assets were gained by hard work, but as we know this is only occasionally true. The Duke of Westminster’s Grosvenor Estate for example, was established by Hugh Audley, a kind of seventeenth century asset shark and rip-off merchant.  Strangely these people are not keen on developing schemes which would give everyone these sort of advantages, no matter how small, initially. So I suggest levelling up the playing field a little.

Take the Children’s Trust Fund (CTF) set up in 2002 by Gordon Brown.  Until the Coalition Government scrapped the scheme in 2011 this provided a tool to make a start.  The idea behind the CTF was simple, when a baby was born a fund was set up with the Government putting in £250, additional private contributions being allowed but limited to about £4000 per year.  At age 18 the fund was turned over to the young adult.  Of course the scheme was ended by just those politicians from privilege backgrounds who said we couldn’t afford it, but the Money Advice Service have a brief description of the scheme.

So the ideas are already there, we just need to bring them back, but this time make it meaningful. Lets start with the Government giving starting each account with £2000 and adding a further £2000 at age 14.  Additional private payments should be strictly limited.  The whole scheme could be funded by increasing inheritance and other forms of wealth tax.  By the way, in the USA authors Ackermann and Alstott in their book The Stakeholder Society suggesting paying each American $80,000 at age 18!  Even allowing for growth of assets we would be struggling to get our initial £2000 anywhere near the equivalent in 18 years but it is an aspiration. If there is any doubt about whether someone will act responsibly with the fund, bear in mind that no-one assesses whether the Duke of Westminster, Duncan Smith or Rees-Mogg were ‘responsible’ enough to control significant assets?

Is this post simply based on jealousy?.No.  It has long been understood (since at least the 17th Century) that freedom is inextricably linked to the availability of sufficient personal economic and social resources. Financial domination and oppression can be equally as damaging as political domination and are frequently interlinked (as we can see!). These issues are, of course, tied in with the traditional radical concerns with greater equality and inclusion in society. Basically, to be genuinely free and allow an exercise of citizenship you need assets.

The re-establishment of a ramped up CTF is a very small start and politics will not be suddenly full of people from normal backgrounds elbowing the likes of Cameron, Osborne and Rees-Mogg aside. It should be part of a range of actions including the increasingly popular Citizens Basic Income for one. The fact that even small schemes to provide the sort of help enjoyed by the wealthy boys and girls are trashed the very people who already benefit is, sadly, no surprise. But that does not mean we should put up with it!

Senator Bernie Sanders is Right About Oligarchy; But the Warning is Over 2 Thousand Years Old!

We humans pride ourselves on our ability to learn and adapt. So it must be a triumph of greed over intellect that well we fall into the same traps despite being warned about them for over two thousand years!!. Nowhere is this more stark than with the rise of oligarchy, the problem where a small group of people gain control of a country or an organisation. Writing as long ago as the 4th Century BC the philosopher Aristotle identified oligarchy as a deviant form of aristocracy and pointed to  two specific aspects which concern us at this time.  Firstly he regarded wealth as the important issue in the rise to prominence of a few powerful rulers.  Secondly, he regarded an oligarchy as ruling solely for its own benefit (hence deviant), disregarding the plight of the poor and dispossessed.

So its worth spending a little time finding out what we can learn from the beardy old Greek thinker. Aristotle warned that rule by the few alone (just like the rule of an absolute monarch or unrestrained democracy) is unstable and liable to collapse. In fact in America and Europe today the power of the few has grown markedly while the power of democratic forces have been consequently in decline.  In the US this is exactly the danger which former Presidential candidate Senator Bernie Sanders has been warning about.  As a result, aside from the election of Trump, it has brought about an increased threat of instability and authoritarian government in almost every western country.

But we can learn a lot more from those old Greeks.  For a start, Aristotle was writing from experience of oligarchic rule which mobilised sages, poets and artists in the maintenance of their power.  Discussing public speech in a republic, Barry Strauss noted that:

The Sophists, with their corrosive relativism, taught rich and talented young greeks that power was better than truth.  Socrates [Aristotle’s illustrious predecessor] sat out the civil war in Athens between democracy and oligarchy at the end of the Peloponnesian war’.

Who were the Sophists? They were peripatetic intellectual coaches who taught the children of wealthy ‘excellence’ in order to gain power and fame. So little difference from our modern day Eton, Harrow, Oxford or Cambridge, apart from the fact that the students travel to them rather than the other way around!  Strauss’s point about corrosive relativism is telling with ancient poets and artists now being replaced by journalists, branding and PR experts employed in media outlets.  Today we call it ‘post-truth’ journalism, beloved of both the hard copy media such as The Sun newspaper and online outlets such as Breitbart. Socrates may have ‘sat out’, as Strauss puts it, the civil war in Athens between democracy and oligarchy, but such disengagement is not advisable in the modern age or we may experience the reappearance of the find the mass slavery of his time.

In the Spirit Level book Richard Wilkinson and Kate Pickett pointed out how initial wealth inequalities become entrenched into a class system.  They state:

Over time,  crude differences in wealth gradually become overlaid by differences in clothing, aesthetic taste, education, sense of self and all the other markers of class identity. Think for example of how the comparatively recent emergence of huge income differences in Russia will come to affect class structure.  when the children of the new Russian oligarchs have grown up in grand houses, attended private schools and travelled the world they will have developed all the cultural trappings of an upper class.

Apart from Russia, there are many examples of this happening, especially in the United States.  Already some members of the Democratic Party speak of persuading the Clinton daughter Chelsea to stand for President thus proving that at least some are intent on repeating the disaster of Hillary’s candidature. The only saving grace is that the Trump family look to be making the same mistake with daughter Ivanka raising eyebrows with her presence at some early high level meetings alongside her father. To the great surprise of almost no-one, rather than ending the Washington oligarchies, Trump is simply replacing them with new forms including his own family.

In the UK we have lived with this reciprocal arrangement of wealth and power for a long time.  The House of Lords, once the bastion of aristocratic power (though to what extent they fulfilled Aristotle’s claim of wielding power with the poor in mind is, to say the least, doubtful) is rapidly in the process of turning into a seat of oligarchic power. The fact that the transformation is not yet complete can be seen in their flat rejection of George Osborne’s punitive Tax Credit cuts.  But time is short and reform is now desperately urgent in the over bloated chamber.  The scandal of rewarding corporate donors with seats in the Lords is a well-known scandal.

So can we do anything about oligarchy as individuals. Unfortunately this is where the Greek experience can no longer help us since their solution was to apply their advice to prevent oligarchy arising in the first place and civil war is hardly a recommended remedy. But we are not powerless. Firstly, we can overcome ‘post-truth’ politics by looking at a variety of news media, combined with twitter and other online sources. Also, combine it with what you actually see in your daily life. Are people sleeping rough, what are NHS services like, and so on.  Then draw people’s attention to it.  Secondly, there is an idea gaining ground that voting changes nothing.  But tell that to Trump’s supporters! Make no mistake the current economic system was facilitated by politicians. Claiming they are powerless is a convenient distraction from this simple truth. A different system can be instigated by electing more egalitarian-minded politicians. Ownership of news media can be restricted and the rules on corporate board composition can be changed. ‘Too big to fail’ banks can be broken up. In reality it will take an international change to bring about profound and lasting improvement, but the UK with the City of London means that we can punch way above our economic weight in controlling corporations. So, whenever possible vote for a representative in any General or By-Election whom you think represents the best chance of change irrespective of their party. Vote for an individual, not a party. Finally join and support a party whose aims are to being about the end of oligarchy. Don’t be like Socrates the philosopher, don’t give up and sit this out!!

We Need a Democratic Revolution of Investment Potential

The death of one of the richest men in the UK, Gerald Grosvenor the 6th Duke of Westminster, earlier this year (August 2016) threw into relief the gross inequality of wealth in the UK. The Grosvenor estate was established by Hugh Ardley in the 17th Century, who was no shrinking violet as can be seen from this ‘way to riches’ biography of his life. The outrageous aspect of the Grosvenor estate is that via a system of trusts the Estate pays almost no Inheritance Tax! It is a strong temptation to call for the state to simply seize the Grosvenor Estate and bring it into public ownership.  While I am all in favour of abolishing hereditary titles, such a call actually reveals a much more widespread and deepseated problem with in our current neo-libertarian approach to economics, that of exactly who controls the means of investment. Supposing we did in fact ‘nationalize’ the Grosvenor Estate. That means the Government will possess over £9bn worth of property which will be practically worthless unless the assets are sold.  So an equally important question is not only who controls the assets but who controls the investment potential generated by those assets.  Clearly by avoiding taxes the Grosvenors themselves are actually enjoying the full investment potential of the estate.

Investigating the ownership of investment potential as well as the assets reveals the true extent of the gross unbalanced nature of our society. An example from a different domain is the contract for controversial nuclear power station Hinckley Point C.  The construction of an as yet unproven model of power station is being funded by the French EDF power company but only on the basis that the UK electricity consumer (yes us again) buys the electricity at much above market rates for decades to come. But what if the unproven reactor design requires extensive and expensive modification?  Will the government really hold EDF to its contract and possibly bankrupt the company? The substantial potential returns on the installation are privatised while it appears that the risk is, once again, borne by the public.

But there are other models of investment, some of which operate in the United States which is often held up as a paragon of private owner capitalism.  A closer view reveals a more complex interaction of public and private ownership, a particularly interesting example being the New York Power Authority. The NYPA is a publicly owned power generating company in New York State which claims to be one of the most efficient generators in the US, tasked with developing renewable sources and providing cheap power to not-for-profit organisations and small businesses.   But we can go further than this with the massive potential in Pension Funds and other schemes.  Open up these funds to the control of their investors and a more democratic system of investment becomes possible. The question of the democratization of investment potential is every bit as important as who actually controls wealth with which, of course, it is inextricably linked.