Society and Culture

From aspiration to the cost of living, politicians of all stripes have forgotten their roots

Over the past week, politicians from both sides of the House have been railing against ‘corporate excess’ in all its forms.

On Tuesday we learnt that the Labour Party is considering further action on high pay, including a ban on ‘golden handshakes’, and legislation barring executives from being paid in share options.

The new report, commissioned by Shadow Business Secretary Rebecca Long-Bailey, also calls for greater pay transparency, suggesting that all companies with more than 250 staff should publish the names of employees paid above £150,000 a year. Between this and earlier plans to force businesses employing more than 250 people to hand over 10 per cent of their equity to workers, I suspect Labour are going to create an awful lot of companies with 249 employees.

The report even makes the absurd suggestion that customers of larger UK firms should be able to vote on executive pay, though it remains unclear how this would be implemented. In determining the pay of supermarket bosses, for example, would occasional grocery shoppers count, or would you need to own a Nectar card or Clubcard to be eligible?

Either way, these are extraordinary propositions. Shareholders, I can understand. Your run-of-the-mill unreformed communist might make the case for employees or bureaucrats to be involved in these decisions, but surely even Marx never advocated something quite as nonsensical as customers getting a vote on the remuneration of executives?

On Wednesday, Primark’s Ethics Chief was hauled up in front of the Environment, Food and Rural Affairs Select Committee to explain the retailer’s low prices. “How do you justify selling a £2 T-shirt?”, he was asked by Committee chair Mary Creagh. This raises many questions. Not about the T-shirt itself, but about the disconnect between politicians and those they represent.

It is not obvious that the quality of Primark clothing is markedly lower than that of their competitors. Primark garments are manufactured in the same factories as other high street retailers, yet they rely on customers buying in bulk, operate tighter profit margins and lower costs by creating economies of scale with huge upfront orders. Crucially, they spend nothing on advertising, promotion or online sales. By all accounts, they keep their costs extremely low and pass on these savings to customers.

Sure, £2 is not much to pay for a top, but who is Mary Creagh to deem it “too low”? If it is too low, where should the threshold be? £3? £5? £10? Why? Who decides?

Primark has devised a business model that works for them and their customers. Their typical shopper does indeed buy in large quantities (the baskets at the front of stores attest to this grocery-style shopping experience). Who are politicians to determine the structure – or moral worth – of their business model, or haul retailers to task for lowering the price of a crucial amenity for millions of people? Coming from an MP earning almost £70,000 a year (plus expenses), this has more than a hint of “Let them wear cashmere” to it. If Primark’s manufacturing practices are suspect, then MPs should critique them on specifics, not attempt to second-guess market prices.

It is a sad state of affairs when Labour MPs believe people should be forced to pay more for food and clothing. On the other side of the House, however, some Conservatives are also joining in the war on high pay and wealth creation.

Immigration Minister Caroline Nokes recently remarked: “I don’t think anybody having a salary of [£1 million] is appropriate, whatever business they are in”.

The arguments against ‘maximum earnings’ are overwhelming.  Any kind of wage cap, which would effectively amount to a 100% tax rate on all income above that level, would crush innovation and send an anti-aspirational message throughout society. Without high earners, the Treasury would forego billions in tax revenues and face huge gaps in public funding.

These sorts of arguments also mislead those on low wages into believing cuts at the top automatically translate into top-ups for those at the lower end of the salary spectrum. Yet there is simply no evidence that high earners deprive others of wealth. Historically, prosperity and incomes have risen precisely because wealth accumulation is *not* a zero-sum game. Ideally, we want more millionaires and billionaires who can contribute to our economy in a positive way, not fewer.

If Caroline Nokes is, in her capacity as an immigration minister, attempting to discourage people from coming to the UK after Brexit, then she is surely going about it the right way.

What Nokes defines as ‘inappropriate, the Guardian calls ‘obscene’. Having spent years lamenting Britain’s aggregate gender pay gap, which can be partly explained by a lack of female CEOs, members of the press and MPs have seamlessly moved on to critiquing the ‘greed’ of one such CEO – Denise Coates, the head of Bet365, who awarded herself a record-breaking salary this year.

“If Denise Coates’s £265m pay packet was stacked up in new £50 notes it would form a tower almost twice as high as the Shard skyscraper in London”, the Guardian writes.

By this bizarre metric, Bill Gates’s lifetime earnings could presumably build many Burj Khalifas, but this tells us absolutely nothing about the CEO, or firm, in question. How do you measure the value a company like Microsoft has brought to its customers (not to mention the small matter of the estimated 400 million lives the Gates Foundation has saved through disease eradication)? Yes, both Bill Gates and Denise Coates receive astonishing, mind-blowing salaries – but these are astonishing, mind-blowing achievements.

Bet365 is a private company, which started out of a portacabin in Stoke-on-Trent in 2002. Denise Coates and her family risked everything (including their own capital) to expand their business. Today, they employ thousands of people in an area of low employment, having remained there, rather than relocating abroad. Through personal and corporate taxes, Coates makes huge contributions to the Treasury. By taking it out as normal salary, her income tax will have totaled £120m, and her corporation tax £130m. She also donates around £50m to local charities each year.

There’s the world of difference between Coates and, say, a Russian oligarch. Her story should be a source of inspiration, rather than demonisation.

Instead of flirting with policies that would raise the cost of living and reduce the nation’s tax take, politicians of all stripes should applaud entrepreneurs who create jobs and pay their taxes.

Madeline is the IEA’s Editorial Manager, responsible for commissioning and running the IEA blog, and creating content for the IEA podcast channel and other media outlets. Prior to joining the Institute, she worked as a Parliamentary researcher and speechwriter, and as a reporter for Newsweek Magazine. Madeline graduated from St Hilda’s College, Oxford in 2014, with a degree in English. As an undergraduate, Madeline was actively involved in university politics, and was elected to Standing Committee of the Oxford Union during her studies.

2 thoughts on “From aspiration to the cost of living, politicians of all stripes have forgotten their roots”

  1. Posted 29/11/2018 at 13:26 | Permalink

    Another argument against high pay regulation is that pay (like all prices) sends signals. Let’s say an elite footballer (or business exec) was going to give away everything they earned over £80K a year but that this person wanted to go to where they would add most social value (so pull self-interest out of the equation). The level of pay that Chelsea will pay relative to the level that Tranmere will pay reflects the value to the two clubs. This is not just a question of affordability. The TV exposure etc etc is reflected in the TV revenues and what the club will pay for a player and, in turn that reflects the number of people who will watch the player play for Chelsea as compared with Tranmere and the value they get from watching him (indicated by the sky subscriptions). There may be other considerations too, but if the player were operating solely in the commercial sector and wanted to maximise his value to society, he should play for Chelsea.

  2. Posted 30/11/2018 at 17:20 | Permalink

    Hi Madeline,
    I agree with you, more millionaire’s and billionaires the better. I work for a Indian billionaire owned business and get payed well with good terms and conditions, if he were over taxed or his business, myself and fellow workers would be out of work I’m sure. I do believe in controlling immigration, a country is like a company, if a company allowed anyone through the gate and tried to accommodate their skills, pay for idle hours , house them, free medicare, free educate , and let them out bid the regular workers
    pay, it would be backrupt very soon, which is what’s happening to Britain.

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