As the FT notes this morning:
Deloitte's UK partners will receive an average payout of about £1m after the accounting firm's profits rebounded from a pandemic slump last year, helped by the sale of its restructuring division.
They note two other issues. The first is that this is the highest profit for at least a decade.
The second is that by May 2020 the firm had been awarded 26 contracts worth up to £278.7m for Covid related work, much of which was in rather basic track and tracing work in the early stages of the pandemic. Might there be a coincidence between that sum and record profits? The chance seems quite high.
But whatever the cause (and profits from sale of the former Deloitte restructuring division have helped, I acknowledge) there is a real issue to address, which is that this is excessive profit. The partners in Deloitte are extracting rewards above what would be an open market rate because audit and other regulation provides them with the opportunity to do so. They pay tax at 45% plus small national insurance contributions on that, resulting in them having effective tax rates lower than many of their staff who will be repaying graduate loans. And that does not make sense.
Not only might we need a tax on excess profits in Covid contracts, we need a more progressive tax system as well.
And we need to end the monstrosity of student loans.
All of which must be matched by changes in tax for the least well off, and enhanced benefits.
Decades of failed tax policy are coming home to roost now. Amongst the many issues needing the be addressed are these. I wish I could imagine Rachel Reeves being the person to tackle them.
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“Excess profits in Covid contracts..”
It sounds like the government people negotiating the contracts should drive costs down so that unless Deloittes find efficiency savings then excess profits aren’t possible. But that would mean less money being spent by the government.
Deloitte has around 1100 partners in the UK, so that is around £1.1bn of profit in total. I bet partners drawings are not flat, and the £1m on average conceals a massive spread.
What were the revenues? How much profit should they make before it becomes excessive?
I can see the argument that the self employed are significantly under taxed compared to employees, but for example significantly increasing class 4 NICs is likely to face significantly political headwinds.
Would Reeves be allowed to tackle these issues given how craven the Labour party is now?
I doubt it.
By admitting neo-liberalism into their party, Labour has only very thin margins in which to make meaningful alternative policy in the straitjacket they have put on themselves.
“The partners in Deloitte are extracting rewards above what would be an open market rate because audit and other regulation provides them with the opportunity to do so.”
In fact, the audit partners will be amongst the lowest paid partners because audit is a notoriously low-margin business. Management consulting is far more lucrative.
And why are the management consultants able to position themselves so strongly in the market? Might it just be because of the advantage being an audit firm brings? Pretending these are silos is absurd.
“And why are the management consultants able to position themselves so strongly in the market? Might it just be because of the advantage being an audit firm brings? ”
I don’t think that’s a particularly compelling explanation. McKinsey, Accenture, BCG etc. don’t have audit teams but their partners still take home similar amounts.
And their market share?
The profit shares of the partners in the big-4 firms have been excessive for many years and of course £1m is the average. Many have shares of several millions. Profit shares at this level can only be the result of one of two things 1) taking risks associated with self-employment or 2) an unregulated market. In the case of the big-4 it is clearly the latter (the ‘risk’ associated with being a partner in a large accountancy firm is negligible) and their lucrative government contracts awarded by ministers who will then seek consultancy arrangements when they lose office.
This level of inequality smacks of Russian abuse of power or a third world dictatorship. How much longer must we put up with it?
Good comment