I have spent a lot of the day talking to the media about Sir Philip Green.
I did not want to. They called me. In 2006 I helped make a Money Programme in which I discussed the exceptional dividend his UK retail group paid through offshore trusts for the benefit if his wife, who was then resident in Monaco. I suggested at the time that this saved the Green family £285 million if that payment was compared to the alterative of having had the dividend paid to the UK resident (then) Mr Green. I stand by that calculation. I also note that Sir Philip Green said then, and presumably still does, that “no tax was avoided because none was due”. That this was because of the arrangements he and his family had put in place is a matter we can leave aside for now: although I’d describe those arrangements as the tax avoidance process he clearly does not, and I’m happy to let the matter and difference of opinion rest.
So why the calls? Well, as has been widely reported:
The government has asked Sir Philip Green, the billionaire owner of high street retail chains including Topshop and Dorothy Perkins, to carry out an external review of its drive to cut public spending, it was announced yesterday.
The entrepreneur's audit of government spending will run alongside the coalition's ongoing major review of ways to start cutting the £155bn deficit.
Green, regularly photographed in the company of celebrity friends such as Kate Moss, is behind the UK's largest private family-owned clothing retailer, Arcadia, which employs more than 40,000 staff.
He will head a team of officials in the Cabinet Office and Treasury looking at the last three years of spending to identify inefficiencies and savings. In particular, he will look at whether leases and contracts entered into in 2007 were good value.
Green will report to the Cabinet Office minister, Francis Maude, and the chief secretary to the Treasury, Danny Alexander, before the end of the spending review.
The review concludes on 20 October and will set out cuts of 25% to 40% in Whitehall departments whose funding is not ringfenced.
I don’t take offence at this appointment because Sir Philip has avoided tax, even if others wish to highlight that issue. That’s his business. I’ll also leave aside the fact that the appointment does lead me to question the political judgement of those who appointed him — but that’s something I’ll be doing day in and day out of ConDem ministers for the next 4 years or so (unless we get a lucky break and they go early). Again, that’s still not the issue that really concerns me here. What really annoys me about this appointment is, I think, the subliminal but absolutely fundamental messages that those making it are wishing to send out.
The first is that they don’t trust civil servants to undertake a review of this sort. I am shocked and appalled by that. I think they are competent to do it.
Second is that they don’t trust their own judgement or competence to undertake such a review. What sort of minnows do we have in this government? (Yes, I know — Francis Maude and Danny Alexander answer that question).
Third, there is the implicit assumption that the private sector knows best.
Fourth, there is confirmation that the sycophancy of Blair and Brown is to continue under the ConDems.
Let’s be clear: I’m not disputing for a moment that Sir Philip green is a first rate retailer of cheap fashion. He is. But, with the very greatest of respect to those who appointed him, what do they think this has to do with the appraisal of government spending?
Fashion retailing is about selling inconsequential ephemeral apparel in large volumes to make a profit. None of it is needed: all of it is wanted. The criteria for success is profit. The management technique for motivation is the setting of targets. The basis for all financial decision making is cash flow. The entire management approach focuses solely on microeconomic issues.
This is about as far removed from government activity as it is possible to get. The vast majority of government activity is about the meeting of needs, not wants. The criteria for success are wholly unrelated to profit: they relate to the creation of viable communities. The required management technique should not be targets (odd to bring in a man who must use them when the ConDems say they’re the last thing they want to use now) but the fulfilment of a complex algorithm of goals all of which will require complex ability to manage often conflicting aims. Cash flow is not one of those aims. Integration in the vastly more complex world of macroeconomics when compared to the absolute simplicity of the microeconomics of retail management is one of those aims.
I could analyse the differences in much greater depth but do not think I need do so. The point is that whilst Sir Philip must have considerable skills they’re really not the ones I think are needed to undertake a review of the financial decisions made by government over the last three years.
An expert on macro-economics; an objective observer on PFI; a senior civil servant from another country (say, Germany) could have undertaken such a review. But a retailer? That’s just incomprehensible. An ability to sell lots of knickers is not what is needed for this job. And I think the implicit vote of no confidence in the civil service that this appointment represents is in itself one of the most profoundly disturbing messages that this government has sent out to the dedicated, loyal, and (in my experience) highly competent (in the main) civil servants who work for them. How long it will be before we see the First Division Association in dispute with the government is anyone’s guess — but at this rate I’m very sure they are very annoyed indeed tonight. And rightly so.
PS Note Kate Moss’s top in this picture of her with Sir Philip appears to be transparent. Oh for a little more such transparency in finances, public and private, say I.
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Any idea why HMRC didn’t challenge the exceptional dividend arrangement? Whilst I don’t know how exactly it was engineered, there are several plausible lines of attack that could be taken. And, given the amounts at stake, it would surely be worth proceeding even with only a relatively low chance of success.
Is it that the tax planning was so overpoweringly brilliant that any challenge was thought certain to fail? Was there in fact a challenge, and a confidential settlement? Or does HMRC just not have the gumption to launch challenges such as this?
A quick comment leaving aside the personalities as all I know about Sir Philip is what I’ve picked up from the media. And also ignoring the fact that I find the prospect of the ‘big society’ just as unappealing as the status quo – but for different reasons.
By definition Sir Philip has not been brought in to conduct an “appraisal of government spending”. You’re shocked and appalled that the Government “don’t trust civil servants to undertake a review of this sort”. I’m not – especially having heard both ‘Yes Minister’ and ‘The Thick of it’ described as true to life. However diligent some civil servants may be there is a strong risk they will look after their own. Too many top people will keep their jobs and perks.
And I’m pleased that Ministers recognise that they lack the experience to do everything themselves. Another reason why it’s a good idea to bring in someone else. In the same way I welcome the appointment of John Whiting to the OTS. Again neither civil servants or Ministers are best placed to make the necessary decisions re tax simplification.
Whoever makes the final decisions re the efficiency cuts in departmental spending there is a prospect of the wrong cuts being made. With HMRC we see crazy numbers of experienced inspectors being offered or told to take early retirement. When the fallacies of Gordon’s cuts here are exposed there’ll be no going back. There’s no real prospect of recovering that lost experience and knowledge through new recruits or promotions.
(I can see why so many of your posts are so long Richard. This was going to be a quickie but once we get started…..)
@Marc Daniels
There was much more to this dividend
The oddest bit was that the company did not seem to have the available reserves to pay it – but did all the same
I explored that issue a long time ago, here http://taxresearch.wordpress.com/2006/06/19/sir-philip-green-the-rewards-of-tax-avoidance/
Oops – final thought on this for now. Again, being even handed, Sir Philip’s review is not instead of the internal one. It’s additional. To provide a benchmark perhaps.
In theory yes, “An expert on macro-economics; an objective observer on PFI; a senior civil servant from another country (say, Germany) could have undertaken such a review.”. The first two would be very good at theory and the third would have no credibility in the eyes of the public (which includes MPs) and his/her views would be dismissed as the person would be unaware of the differences between UK and Germany. But I can see the logic for the suggestion. Nice one
Mark
But you think they’ll believe a man who sells pretty frocks?
I despair if that’s true 🙂
And what’s wrong with theory – and practical experience
Do they count fro nothing now?
Likewise competence?
Isn’t that all your network sells?
Would you ask Sir Philip to advise on CGT using your criteria?
Richard
@Mark Lee
We’re going to have to disagree
Sitting around tables at the Treasury I am always struck by the imbalance in intellectual resources brought to the table by the private and public sectors in favour of the public sector – whose ability to understand things beyond the end of their noses is always so striking, which those from the private sector can so rarely do
As for John Whiting’s appointment – I know John and like him – he’s a decent chap – but anyone ex PWC was the wrong person for this job
The reality is we have to support the civil service and believe in politicians – as they have to believe in themselves
Or we’ll lose our democracy and end up with a demogoguery
And that’s a very worrying prospect indeed
Especuially as we are heading that way
I too am invariably impressed by those I’ve met from the Treasury and from the higher echelons of HMRC.
Not sure I follow the analogy with seeking technical tax advice from someone with no technical knowledge. Isn’t it more about seeking strategic advice from someone who has knowledge and experience of considering strategic issues just in a different environment?
Incidentally I share the concerns expressed about the dividend and the actions taken to avoid the tax that would otherwise have been payable. So, for the record, I’m not a fan of Sir Philip’s appointment either! (You’ll note my first comment above was not about the personalities, more the principles)
Elephants never forget…
This has been going on for the better part of two decades. The then CEO of Smiths Industries, Roger Hurn, was called in to tell a large civil service department how to run its business in 1995. Those who questioned his ability to understand that department’s modus operandi were told not to be so arrogant. History tells us that the Hurn review gave that department no benefit whatsoever.
I have always been impressed by the calibre of the Treasury civil servants I have met. In my experience they always show up the weakness of the politicos. (In particular one who I fear may become the next Labour leader).
Richard
Can agree with everything you have said on this subject of Sir Philp Green.
Yes you are also right that it shows a complete lack of faith in the Civil Service and the complete ignorance that both this government and the previous one shows in its understanding of the Pulic Sector. The Public Sector is not there to make a profit, it is there to serve the public. Yes the Public Sector should always strive to be as efficient as it possibly can and I would be the first to admit, as a Public Sector worker that we can and must do better. Yes I admit that savings can be made but why do we have this constant battle of ‘Private Good, Public Bad’. Call me stupid but I am quite proud of what I do in the Public Sector (I’m a Librarian by the way) and I constantly strive to be better in what I do.
The unfortunate part is that once this government has finished decimating the good work that the Public Sector does do, people will come to realise how much they rely on us. By then it will be too late.
However all is not lost, at least Sir Philip can advise this shower how to counteract all those Tax Avoidance schemes!!!!!
@Richard Murphy
There are a number of entirely legitimate ways of increasing distributable reserves. Those techniques are entirely kosher from a corporate law perspective, but I would expect make Green’s dividend scheme considerably more vulnerable to a tax challenge.
The first is that they don’t trust civil servants to undertake a review of this sort. I am shocked and appalled by that. I think they are competent to do it.
I don’t. Would you care to expand on why a department that is continually undermining the government (of whichever flavour, one only need to watch Yes (Prime) Minister to get a sense of what the civil service gets up to) should get a free pass?
Yes, the show was ‘fiction’, but it does get across to the proles how the civil service operates – it’s reason for existance is neither to the public’s nor the government’s interest; it’s only to ensure they’re still there.
@PJH
I didn’t suggest the Treasury did it
I suggested experts do it
Some will be civil servants
Retailers do not have that expertise, I suggest
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