I will be on the Jeremy Vine Show today on BBC Radio 2 talking about companies that have done well out of the coronavirus crisis - because some have.
I never know what the questions might be before going on air, but one thing I think we might talk about is an 'excess profits tax'.
We had one from 1939 to prevent companies from profiting from the crisis that the war created. In 1940 the tax rate went to 100%:
I certainly won't be proposing a tax at that rate, but such a tax at a reasonable rate is possible, I think, and the fact is that as in so many other areas, there is a need to rethink just what the role of our largest companies might be in the post coronavirus era.
We now have the concept of 'essential workers'. It would seem to me that we now have essential companies. These are companies that are not only too big to fail, but impose too great a cost on society by failing. However, because companies are so diverse in the nature of their operations that we cannot be sure which companies are essential, and so have to treat all as if they are.
In the short term pressure can be brought to bear on companies that are receiving bailouts, loans and furlough support - as a great many are. Conditions can and should be attached, including:
- An end to dividends and share buy-backs whilst state support continues;
- An end to executive pay increases and a move to more reasonable bases for pay in the future;
- A tax governance policy that requires full disclosure on public record;
- A requirement that the use of any place suggested to be a tax haven be explained by the company;
- Full country-by-country reporting on public record for all multinational corporations based on the GRI standard for disclosure so that we can see what use is made of tax havens, and where tax is, and is not, paid;
- Full accounts on public record for all companies that have received any form of state aid, and full tax disclosure explaining the tax change in all those accounts;
- The option for the state to convert loans made to companies into shares, which the company could only buy back at a premium;
- A commitment to a proper regionally calculated living wage for all staff;
- Full recognition of union rights;
- Publication of a gender pay gap;
- A commitment to become carbon neutral and agreement to publish progress towards that aim using the approach suggested in sustainable cost accounting.
Why do this? Because society is helping a majority of companies to survive this crisis. I support that, but there is a quid pro quo to be had in exchange. Some of that is short term as noted above, but with colleagues at Sheffield University, Copenhagen Business School and Queen Mary, University of London, I am working on longer-term proposals right now that rethink the corporation for this new era. There will be more on this very soon, but we need new accounting, new concepts of capital, new forms of scouting for environmental change and an acceptance of a duty to all in society and not just shareholders if the corporation is to survive. We cannot go back to where we were.
Thanks for reading this post.
You can share this post on social media of your choice by clicking these icons:
You can subscribe to this blog's daily email here.
And if you would like to support this blog you can, here:
Since tax is a method of discouraging bad behaviour then how about an extra level of tax on companies where the increase in total salary of the directors exceeds the increase for the median employee (or some other suitable and easy to work out method of coming up with an average for the firm excluding the directors). So lets say the directors get 10% and the rest of the staff get 2%, therefore we increase the rate of Corporation Tax from whatever the standard rate is by the excess, so 8%. It is no use increasing tax on the directors because they will just pay themselves even more to compensate, so put the tax in some way onto the shareholders. If the directors are directly (via inflated salaries) and indirectly (via extra corporation tax) reducing the profits and thus the funds available for dividends then they would be incentivised to do their job and exert control over the board.
It would also be a good idea to make it easier for shareholders to submit motions to AGMs and vote and there should be no such things as a non-binding vote of shareholders. At the moment directors of big companies get away with murder because they can rely on the shareholders being dispersed, and neither motivated to or able to organise / co-ordinate any control.
When you actually look at where the returns are going for big companies (esp in the US, but to the UK to an extent too) then it is not the shareholders. Payments to directors in one form of other are now a considerable percentage of total profit in many ways, and more is diverted into other hands as well such as financial advisers, leaseing companies and so on. Which reminds me – interest should not be deductible from taxable profit. It just encourages debt financing and we need more equity. If big retailers owned their shops they would not be gauged by greedy landlords, for example, and would have more equity in time of crisis like now.
Hi Richard
Has there been any work done yet on what a proper and realistic living wage should look like?
For example, the minimum of £8.72 is in no way sufficient for the South East of England. I would have thought that double this would be a good starting point given the cost of living….
Robin
The Living Wage Foundation are best on this
I came across an article written in the FT (14th October, 2012) by Gavin Davies (remember him? He made the transition from Labour economic advisor for Wilson and Callaghan, to Goldman Sachs and full-blooded neo-liberalism). It may be thought Davies’s article is dated, but I thought it interesting. It is titled ‘Will central banks cancel government debt?’. In it he discusses why governments issue bonds, including this observation: “When it runs a budget deficit, the government injects demand into the economy. By selling bonds to cover the deficit, it absorbs private savings, leaving less to be used to finance private investment. Another way of looking at this is that it raises interest rates by selling the bonds. Furthermore the private sector recognises that the bonds will one day need to be redeemed, so the expected burden of taxation in the future rises. This reduces private expenditure today. Let us call this combination of factors the ‘restraining effect’ of bond sales”.
I do not wish to rehearse Davies’s brief discussion of QE, printing money and Debt (it is here: https://www.ft.com/content/cadb186f-81ea-335d-a871-d45114ea1d8a), but specifically to focus on his particular concern with the ending of the “restraining effect” of bond sales if, for example we have both QE and debt was cancelled. He emphasises that in the way QE was operating in the UK at that time, “the restraining effects of the bond sales in the long run will still occur”, provided the debt is not cancelled. At the time Davies wrote in 2012, the official bank rate was set at 0.5%. It is now 0.1%. The difference between printing money and using bonds is shrinking in the world he describes, except for the “restraining effects”.
Davies took the “restraining effects’ seriously, so he thought, “the expected burden of taxation in the future reduces private expenditure”. The problem I have with that suggestion is that whatever the theory, the fact is that the Conservative Party remains in power because its Public Relations offers the public something a little different: financial prudence, combined with resistance to future tax increases. Britain presides over more tax havens which are British overseas territories than any other country, and the Conservative Party is the client of neo-liberal vested interests whose mantra is low taxation. I am not clear why Davies thinks the “restraint” via taxation is actually effective. Taxation paid in Britain is principally a function of ordinary people paying taxes directed at them rather than the investment market, through PAYE, NI and VAT. Tax increases primarily arise there. I am not sure the supposed ‘restraint’ is much more than an empty gesture; but I thought Davies’s article was a useful reminder of the importance of tax in the equation and also perhaps the importance of the government’s capacity to maintain influence over events (or at least what they believe is important) through interventions in the bond markets, rather than through ‘printing money’. The basic distinction becomes clearer, the lower the official bank rate.
On the other hand, maybe I should just have a coffee and turn my mind to more productive purposes; or lie for some time in a darkened room.
John
I think you need coffee
You are over analysing bullshit that was used to pretend that QE was just transitory and not money creation so that austerity could be justified
He was seeking to shrink the role of government – and with this BS convinced himself that QE did not change the supposed constraint that achieved that
No one thinks the way he suggests
Except an economist seeking to justify a pre-existing idea
Richard
PS Mine’s an americano
Not just the Second World War. A 50% excess profits duty was introduced in 1915 for profits from August 1914, rising to 80% in 1917 before falling back again, and then abolished in 1921, I think.
True – I just used the most recent example
Agree with the conditions you’re suggesting for bailout – would be good to also include mandatory human rights and environmental due diligence – a key ask by many (see the UK campaign (https://corporate-responsibility.org/new-law-prevent-corporate-abuse/) and movement towards EU due diligence legislation, as well as calls by many many groups in the global south.
These things are addressed in work I am doing on corporate reform right now
Fantastic, thanks – I assumed it was something you’re working on but hadn’t seen it explicitly named in your list of bailout conditions – will be great to hear your thoughts on that in due course, as it will be interesting for those not currently aware of national/international movement on this topic.
We are trying to finish the paper this week….