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In the grip of the rich
Who Runs Britain?
By Robert Peston
Published by Hodder & Stoughton, 2008, £20
ROBERT PESTON’S book describes the economic processes that have taken place whilst New Labour has been in power and the detrimental effect this has had on society. The book also examines the power and influence that the super-rich exert and how they have accumulated enormous wealth.
Familiar to many as the BBC business editor, Peston sometimes gives the impression that he is trying to dumb down the financial news; his analysis can sound over-simplistic. But his book is well researched and informative, giving a clear insight into New Labour’s time in office up until the financial crisis in the summer of 2007. Peston is scathing about the way New Labour has accommodated itself to the super-rich, declaring that the watering down of its attempt to levy £30,000 on those seeking non-domiciled tax status – so that it applied only to those resident in the UK for more than seven years – was an example of "how a party founded by industrial trade unions bent over backwards to keep the City and private equity sweet".
Peston is nostalgic about ‘old’ Labour. His father, Maurice Harry Peston (now Lord Peston), became an advisor to various Labour politicians in the 1960s and 1970s. As the Labour Party moved toward a more neo-liberal agenda in the 1990s, Tony Blair and Gordon Brown began to embrace the free market, ditching clause IV part four of Labour’s constitution.
The leadership courted the rich and famous for financial backing rather than relying solely on trade union money. Blair was adamant about outspending the Tories in the 1997 general election. Paul Blagbrough, former City executive, became Labour’s first finance director, working alongside music entrepreneur Michael Levy, whom Blair had known since the early 1990s. Levy was instrumental in securing hefty donations from wealthy individuals, some of whom were rewarded with knighthoods and peerages, obtaining £12 million in donations to fight the 1997 election (although £1 million had to be paid back over the Ecclestone affair). Levy was made a lord in 1997.
Some of the largest donations came from private equity. Sir Ronnie Cohen and Nigel Doughty, for example, have donated £2.8 million between them since 2001. Cohen co-founded Apax - a private equity firm behind the leveraged buy-outs of companies such as Waterstones and Virgin Radio. He is now chairman of Portland Capital hedge fund and an adviser to the government on ‘encouraging enterprise’ in deprived areas. Once a Liberal Party member, he moved over to Labour after meeting Blair in 1996.
Other contributions include £750,000 from former Goldman-Sachs partner, John Aisbitt, £500,000 from hedge fund executive, William Bollinger, and an estimated £17 million over the past decade from supermarket tycoon, David Sainsbury. Sainsbury became a lord in 1997 and was given a position in the cabinet. Paul Drayson, a healthcare entrepreneur, donated £1.1 million after being appointed to the House of Lords by Blair. Drayson had already courted controversy by donating £100,000 to the Labour Party before his company had won a £32 million government contract supplying a smallpox vaccine. In May 2005, he became a junior defence minister.
But Labour was still short of money for the 2005 election and the donations had begun to dry up. So Blair tried to convince trade union leaders to stump up more cash by making some paltry concessions. This became known as the Warwick agreement. Levy again made approaches to business. Donations above £5,000 now had to be declared but a loan made on commercial terms did not. Many of the individuals Levy approached preferred to remain anonymous so it was through loans that Labour was able to raise substantial amounts of money.
This was how the cash for honours scandal unfolded because it was alleged that some donors were promised seats in the House of Lords in return for these ‘loans’. Sir Gulum Noon had previously donated money and had been knighted in 2002. He lent £250,000 in 2005. Noon had been consulted by Blair in 1997 over the implementation of the European working time directive. Noon argued that the limit on working hours would damage his ready-made meals business.
Chai Patel, healthcare entrepreneur and government adviser, lent £1.5 million. Rod Aldridge, founder of Capita, which has contracts worth millions with the public sector, lent £1 million – when the loan was revealed in 2006, he resigned as Capita’s chairman. He insisted that the loans had nothing to do with his company winning contracts. Property tycoon, Sir David Garrard, lent £2.3 million. He had been a staunch Conservative who, after attending one of Levy’s famous dinners, had been ‘won over’ to Labour.
Noon, Patel, Garrard and stockbroker, Barry Townsley, were nominated for peerages. The Lords’ Appointments Commission said that Patel, Garrard and Townsley were unsuitable to become peers due to issues unrelated to the loans scandal. Noon withdrew his name from the list and, after a costly police investigation, no link between loans and nominations was proven.
What it revealed, though, is the influence the rich have on Labour policy. Peston argues that it is unhealthy for democracy because a small minority with wealth and power can lobby governments for their own interests. He points out that Cohen lobbied on several occasions for an even more benevolent tax regime for private industry. Brown, as chancellor in 2002, announced that tax on capital gains accumulated on business assets and held for two years would be just 10%, therefore benefiting private equity partners who were making millions from buy-outs. Only in 2007 was this amended to a flat rate of 18%.
Britain has one of the most generous tax regimes for big business and wealthy individuals of any developed country. By using tax avoidance measures and exploiting loop-holes, such as claiming non-domiciled status, the wealthy pay disproportionately less tax. This was confirmed in a recent TUC report which costs this at £25 billion a year.
Peston examines how state and occupational pensions have been eroded over the past 30 years. He describes the debate that took place at Labour Party conference in 1996. Brown was determined to stick to Tory state pension arrangements if Labour were elected. Old Labourites, Jack Jones and Barbara Castle, wanted the restoration of the link between average earnings and pensions. The motion was lost, indicating how far Labour had shifted to the right.
A green paper published in 2002 proposed a tax surcharge on anyone saving for a pension who had savings exceeding £1.4 million. The Inland Revenue estimated that only 5,000 people would be affected. In September 2003, the chief executives of prominent British companies, including Unilever, BP and Vodafone, met with Blair. They made it clear that they were unhappy about the proposals and that highly paid staff would be transferred to other countries if they were implemented. The government yielded to some of their demands and, in the budget of March 2004, the limit on pension savings was increased to £1.5 million, rising to £1.8 million in 2010.
Peston acknowledges that workers will be forced to pay for the unfolding financial crisis, due to a combination of hard-to-get mortgages and bank loans, and rising unemployment. But his analysis is limited because he argues that more regulation could make capitalism a fairer system with the redistribution of wealth to the poorest. Yet capitalism is a system of inbuilt inequality, inherently flawed because of cyclical ‘boom and bust’. The book mentions neither the active role the working class will play nor what the alternative to New Labour is. In spite of these criticisms, Who Runs Britain? can be recommended for anyone with a desire to understand the political and economic developments of the past decade.