I note that the press is reporting substantial average pay increases for DTSEV 100 CEO's this morning who do, on average now earn £5.5 million a year. I wrote this blog on the issue of high pay four years ago. Not much has changed since so I offer it again:
TUC has published a new report this morning called Bonus Season. The summary says:
Ending corporation tax relief for pay and bonuses worth more than 10 times average annual earnings (£26,200) could raise around £1.7bn a year if applied to the banking and financial services sector, according to a new TUC report published today (Monday).
The TUC report Bonus Season uses data from the Labour Force Survey to show that over a third (36 per cent) of employees earning more than £250,000 a year in the UK work in banking and finance.
The report then uses HMRC data to estimate that around 81,000 people have incomes of over £262,000 (10 times average annual earnings) that come primarily from employment, including 29,000 people in banking and finance.
The report finds that total pay on earnings above £262,000 in the finance sector — which the TUC believes should be disallowed as a deductible expense for corporation tax purposes — is around £6.8bn a year.
Ending corporation tax relief on earnings over £262,000 in the banking and finance sector would raise £1.7bn a year — vital revenues towards paying back the deficit created by the financial crash, says the TUC.
The report also estimates that extending the scrapping of corporation tax relief for top pay and bonuses over 10 times average earnings to all UK companies would raise around £5bn a year.
With the government effectively cancelling out its own levy on bank balance sheets by cutting the rate of corporation tax from 28 per cent to 23 per cent by 2014, the banking and finance sector is no longer making a proper contribution towards paying off the deficit it played a key role in creating, says the TUC.
A previous TUC report The Corporate Tax Gap showed that banks already pay well below the headline rate of corporation tax and that that the scale of bank losses at the height of the crash has allowed them to knock £19bn off their future tax bills, despite an £850bn bailout from taxpayers and the Bank of England.
The fact that banks are back recording big profits and handing out billions of pounds in bonuses proves they can easily afford a new tax on big bonuses, says the TUC.
The TUC believes that making earnings more than 10 times average annual earnings liable for corporation tax would not only raise revenue but also tackle growing pay inequality by encouraging companies to spread pay across the workforce, rather concentrating it on those at the very top.
As well as calling for top pay to be liable for corporation tax, the TUC believes the following changes would help tackle the growing pay divide between top executives and the rest of the workforce:
- Bring a much-needed dose of economic reality to executive pay decisions by introducing worker representation on to remuneration committees.
- Make executive pay more transparent by publishing the ratio between top pay and both median company workforce pay and the lowest paid members of staff.
- Tackle the closed shop of non-executive directorships (NEDs) by forcing companies to advertise positions externally.
- Make rates of pay increase for directors reflect those of other employees, with an explanation given in the remuneration report should this not be the case.
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And what if a good measure of the politicians
Drinking in their subsidised bar of convivial conditions
Think high pay is a sign of success as well as excess
And know naming insufficient tax as a subsidy is an etymological mess.
I assume that the £850bn of bailouts you refer to were not treated as taxable income? If so, it presumably forms part of the banks permanent capital? If this is the case, then surely any trading losses covered by this government largesse should be disallowed for corporation tax purposes?
Otherwise, tax payers and government are not only funding the £850, they are also denied tax revenue when future profits are reduced by subsidised losses.
I have numerous, non-banking clients over the years who would have been delighted by access to this arrangement…
Which £850 billion?
Some restrictions on the use of banking losses have now been made
There has been much discussion recently about the way in which the management of corporations abuse their positions of power. In theory, they are ‘held to account’ by the auditors and shareholders. However, the auditors are appointed and paid by the management, are typically looking for lucrative non-audit business from that same management, and are therefore hopelessly compromised. The vast majority of small shareholders don’t vote, and the few small shareholders who do vote can be ignored by management. The majority of shareholder power is controlled by the financial services industry, who have the same perspective on remuneration and power as the management.
We need to find a body whose natural perspective is more directly aligned to the long-term interests of the shareholders, and of society in general. There is one. He’s called the tax man.
In the tax year from the 6th of April 2011, the standard rate of corporation tax was 26%. Thus, in effect, the citizens of the UK had a 26% beneficial interest in every large corporation in the UK, and should have 26% of the voting rights, exercised by the tax man. We are not looking here for creative entrepreneurial skills. We are looking for a conservative interest in long-term profits. The tax man should have 100% control of the appointment of the auditor of each corporation’s books (and would be naturally inclined towards organisations who concentrated on due diligence rather than sucking up to management, and would be naturally inclined against any organisation with a significant interest in non-audit business from that corporation). The tax man should have a 26% share of the votes on the each remuneration committee, and should use his votes actively to ensure that bonuses were awarded only for out-performance against industry benchmarks. The tax man should have 26% of the votes on every board, but should use those votes passively and conservatively, only when he believed the management and/or rest of the board were acting in their own interests rather than the shareholders long-term interests. Above all, the tax man should have the right to a prominent annex to the audit and annual reports, to ‘mark the cards’ of managers and directors as a balance to the self-serving mutual admiration society of current audit and annual reports.
It is an interesting idea
But it also assumes capital is the only interest to be represented
Employees have a much bigger claim
I do not see any conflict between the two distinct (and worthy) proposals:
1. Improve the representation of the interests of capital providers (my proposal).
2. Improve the representation of the interests of employee providers (your proposal).
Stop looking for ‘mine’s bigger than your’s’ arguments. Look for complementary proposals to improve overal corporate governance.
It’s called ‘process engineering’.
I am not saying either or
I am saying it cannot be one and not the other
Further to my previous comments, I would add that:
1. My proposal (improve the representation of the interests of capital providers) is relatively non-controvertial. There is no worthwhile such representation currently (so there is undeniably a readily-agreed problem to solve), and there is a worthwhile ‘fit for purpose’ solution (HMRC-sponsored representative on the board, with sole responsibility for appointing the auditors, etc.).
2. Your proposal (improve the representation of the interests of employee providers) is relatively controvertial. Many would argue (rightly or wrongly) that there is already worthwhile such representation currently (i.e. unions, and the employees themselves), and that employees/unions should be negotiating with executives (rather than claiming ‘rights’ at board level), along with other stakeholders such as suppliers, customers, environmental campaigners, etc..
A company usually the spends a lot more on labour than on tax
And labour makes a bigger commitment no takes a larger risk on a company than most capital
What do you mean then that Mu suggestion is more controversial than yours?
Have you noticed how hard it is to get union representation?
Open your eyes Tim and stop theorising in a cul-de-sac whilst seeking to perpetuate the status quo with minor tweaks
The problem is that most MPs are enmeshed in the financial system and will not vote for any changes that conflict with their private interests. Martin Williams’ Parliament Ltd pretty well sums up the current situation. It means that the most essential reform is of Parliament itself. Until that happens, no meaningful changes to the corporate world will be enacted.
So engagement with finance woul;d be banned?
As would having private property by the sound of it?
What sort of world is this that you think might be represented in this way?
And how are the rest to be represented?
And by whom?
As you well know I want reform and have fought for it but I find language of the sort you have used profoundly sinister
Please say what you do mean because right now – and having visited Dachau yesterday, which may have increased my sensibilities – I feel deeply threatened by it
surely there’s also an argument for companies undertaking audits to be restricted to doing only audit and not touting for other business. is there any licensing required for audit firms? if so, why not. what is the regulatory body for audit; does it have sufficient teeth etc etc..
I have long argued for this
surely there’s also an argument for companies undertaking audits to be restricted to doing only audit and not touting for other business. is there any licensing required for audit firms? if not, why not? what is the regulatory body for audit; does it have sufficient teeth etc etc..
Richard, the reference to Dachau in reply to my post is deeply offensive. I am not a communist (or, as you imply, a National Socialist) but a social democrat like yourself. I simply would like MPs to represent their constituents rather than corporate (or trades union, for that matter) interests. I really suggest you read Parliament Ltd – the first thing you’ll learn is that since the 2006 Act, it is now almost impossible to get lists of shareholders from the major companies and to identify MPs’ holdings. It seems to me that despite the large salaries now paid to MPs we are back in the 18th century world described by Lewis Namier where the primary job of an MP was to promote their own, or their clique’s, interests.
There are altruistic MPs – the late Jo Cox was a fine example – but there are too many – like Cameron – who for the interests of themselves or their friends/class – will consistently block major reforms of both the tax system and corporate anti-social behaviour.
I implied no such thing
I made quite clear I took objection to the language you used: I find rather a lot of what is being written right now deeply worrying and profoundly threatening and sinister. I have a deep sense of disquiet about it and said so. I make no apology for saying that of what you write, whether you intended it or not. I suggest more care
And In happen to think you are profoundly wrong in many cases. Right across the House I think there are MPs who want to represent their constituents. To say o9therwise is deeply insulting and also just wrong. Of course I do not deny there are those there primarily for self interest: I am not stupid. But your accusation is just unfounded and also IU believe untrue
And yes I agree that it is annoying that companies do not publish lists of shareholders – but that’s because in modern trading they don’t know who they are
So I change the parliamentary registrars but don’t blame companies for something that they donb’t conbtrol on traded markets
Come to that if you have any pension interest at all I bet you don’t know which companies you might have a stake in
In which case I suggest better judgement is needed and one heck of a lot less suspicion – because there are many Jo Cox’s
Are you in favour of additional taxes on footballers? They earn much more than company directors.
I would withdraw tax relief on the payments made to them
This would mean most football clubs would pay a lot in tax