Who Runs Britain? by Robert Peston, Hodder, 2008, 360pp.
Robert Peston is the BBC's Business Editor. You'll often see him on the news offering his insightful opinions on the world of business. His distinctive delivery style that has been likened to "a weary machine gun". It was Peston who broke the news on the collapse of Northern Rock back in 2007, signalling the beginning of the "credit crunch" in the the UK. Here he examines the background to the economic crisis that has saddled our country with unprecedented levels of public debt.
Peter Mandelson famously said that he was totally relaxed about people getting filthy rich. True to this sentiment, under New Labour the gap between rich and poor grew ever wider. In the Bair/Brown years more and more wealth and with it political influence has been concentrated in the hands of the super-rich. So much for Labour's promise to govern for the benefit of the "many and not the few". One of Peston's main thesis in this book is that Blair and Brown were overly concerned about being perceived as old style anti-business lefties. Not for them Denis Healey's determination to tax the rich "until the pips squeaked". When he was Chancellor, Gordon Brown boasted of Labour's "light touch" approach to City regulation that allowed laissez faire capitalism to seemingly triumph. Embarrassingly in the wake of the recent recession, Brown often claimed that under Labour there would be "no more boom and bust." The fact that he was spectacularly wrong on that count is no doubt one of the reasons why he is now an ex-Prime Minister.
Peston introduces us to some of the movers and shakers of the world of big business such as Philip Green, colourful head of the Arcadia group. Arcadia owns many of the big high street names including BHS, Burtons, Debenhams and Top Shop. Green bought the retail group in 2002, investing a few million pounds of his own money. The outstanding capital was raised through a private equity deal financed largely by the Bank of Scotland. In 2005 the business magnate (or his wife - a tax exile) pocketed a nice little dividend of £1.2bn. Before the credit crunch put the kibosh on easy credit from the banks private equity deals meant big rewards for the likes of Green. Afraid scaring off the super-rich new capitalists, Labour allowed them to pay relatively little tax on their huge profits. Unlike conventional trading in stocks and shares that benefits pension funds and other investors, private equity deals have simply enriched the fortunate few. What Peston has to say on the fate of the pensions industry during during New Labour's thirteen years in power under the heading Who Stole Our Pensions? makes for rather grim reading.
The writer delves into the world of US sub-prime mortgages and the hedge funds that helped to finance them, thus inflating house prices in the States. The housing bubble burst when low income borrowers defaulted on their mortgages, leaving the banks with a gaping hole in their finances. Hence the credit crunch and with it the need for governments worldwide to invest billions of dollars/euros/pounds in refinancing the banks.
Peston exposes the political influence of the super-rich, exploring the murky "cash for peerages" scandal, where big donors to political parties were allegedly rewarded with seats in the House of Lords. Insidiously, the billionaire class holds governments to ransom, threatening to leave the UK for more tax-friendly countries should it be suggested that they pay their fair share into the public purse. Meanwhile ordinary people face having to pay more taxes and suffer cuts in public services due to the reckless, unregulated capitalism that helped to stuff the pockets of the private equity investors and hedge fund managers.
But perhaps the tide is turning. There are signs that the newly formed Lib-Con coalition is not so relaxed about the growing gap between the richest and poorest members of our society. In the public sector there are moves to ensure that the pay of top managers does not exceed twenty times the income the lowest paid workers. The coalition's deal on banking reform includes proposals on reducing risk, curbing unacceptable bonuses, the promotion of mutuals and tighter regulation of the City by the Bank of England.
More needs to be done to ensure that the most wealthy members of our society pay their fair share of tax, including currently tax exempt "non-doms". This would be more equitable than the suggested increase of VAT to 20%, a regressive form of taxation that would disproportionately affect the less well off. Our economy needs to be less reliant on the financial whizz-bangery of the City with its ingenious ways of enriching a greedy few whose risky dealings left the taxpayer dangerously exposed when it all went wrong. The pursuit of wealth for its own sake is not a virtue to be rewarded. As the Good Book says, "The love of money is the root of all kinds of evil" (1 Timothy 6:10). Money should be put to good use, investing in entrepreneurial schemes and research and development projects that will help to rejuvenate British industry, creating highly skilled, meaningful work for ordinary people. We'll have to see if the Lib-Cons will run Britain any better than the Nu-Labs.