Breaking Britain: will private equity funds be ‘the architect of the next crash which will hit every household’?

In 2021 when takeover activity was rampant, Professor of Accountancy Prem Sikka warned that private equity would be the architect of the next crash which will hit every household.

For years many private equity funds have been acquiring good UK businesses, stripping their assets and loading them with debt or closing them down to reduce competition. But the Financial Times reports that private equity funds are struggling as global dealmaking fell to a 10-year low in the first nine months of 2023.

Professor Sikka (right) wrote: “These consortiums have got their tentacles into 124 acquisitions so far in 2021 . . . These include supermarket Asda, motoring support group AA, infrastructure company John Laing, insurer LV, Power generation firm Aggreko, aerospace company Meggitt, Southern Water, care homes and Morrisons is likely to become another trophy for private equity”.

He recalls that Debenhams was bought by private equity for £600m, its new owners incurred debts which ’ballooned’ from £128 million to £1.6 billion. Within the first three years, its owners extracted returns of over £1.1 billion. Debenhams never recovered. It collapsed owing £616m to suppliers, who will recover little. Its pension scheme has a deficit of £32m. Despite making all agreed contributions, thousands of employees will lose some of their pension rights.

According to Bain’s latest report (title above), “Private equity managed to post its second-best year ever in 2022, riding a wave of momentum coming off the industry’s record-breaking performance in 2021 . . . But spiking interest rates caused a sharp decline in deals, exits, and fund-raising during the year’s second half, almost certainly signalling a turn in the cycle”.

Due to a moribund IPO market and the higher cost of financing deals, struggling UK private equity managers are selling companies to themselves, as exit routes dwindle and use of continuation funds becomes the preferred strategy to return cash to investors:

45 Gresham Street, Numis’s current HQ

Use of continuation funds is the most popular option for private equity executives seeking an exit from their investments, according to a poll of 200 senior UK-based industry professionals carried out by UK-focussed Investment Bank Numis (Private Equity Wire) which Deutsche Bank is set to acquire by the end of the year.(Financial News).

The results underline the rising trend of private equity funds turning to newer funds raised by the same firm as they seek to sell their assets to return cash to investors.

The FT recalls that in 2022. Europe’s largest asset manager, Vincent Mortier, compared parts of the private equity industry to a “Ponzi scheme” that will face a reckoning in the coming years. “Some parts of private equity look like a pyramid scheme in a way” (Asia Asset).

https://www.investopedia.com/terms/p/ponzischeme.asp

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. In some Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

Ross Mitchinson, the boss of British broker Numis, has warned that good British businesses are being targeted opportunistically. They face a further wave of takeovers from overseas rivals and private equity groups exploiting “the double benefit of weakened sterling and lowly valued equity markets”.

The FT commented that the government’s £895bn of quantitative easing had not been used to rebuild the economy but fuelled the growth of private equity. Artificially low interest rates provided cheap money – a boon for speculators – and Britain’s industrial and retail sectors have paid the price.

 

 

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Government gives KPMG contracts worth millions, despite its repeated fines for serious misconduct and audit failures

 Yesterday the FT reported that one of the ‘Big Four’ accountants, KPMG, whose conduct is still under review by the Cabinet office, has been awarded millions of pounds of UK government contracts – even though in December last year it had pledged to stop bidding temporarily for public sector work after it was threatened with a ban over its involvement in a series of corporate scandals.

It has form

In 2013 seven senior members of the FRC scheduled to investigate KPMG’s role in the collapse of lender HBOS, were current or former employees of KPMG itself (left). Four years later,  KPMG featured in another ‘revolving door’ charge when Mark Britnell, a former director-general of commissioning at the Department of Health who became global head of healthcare at KPMG, which bids for government health contracts.

A 2018 report from Professor Prem Sikka, Professor of Accounting at University of Sheffield, recorded that Her Majesty’s Revenue and Customs (HMRC) had refused to assist the French authorities and raid Lycamobile’s UK premises (Economia has now broken this link) in order to investigate suspected money laundering and tax fraud.

Following an initial denial (left, Financial Times), Economia (another broken link) confirmed that in an official response to the French government dated 30 March 2017,  a HMRC official noted that Lycamobile is “a large multinational company” with “vast assets at their disposal” and would be “extremely unlikely to agree to having their premises searched”.

The letter from HMRC to the French government added, “It is of note that they are the biggest corporate donor to the Conservative party led by Prime Minister Theresa May and donated 1.25m Euros to the Prince Charles Trust in 2012”.

With reference to KPMG’s auditing of Carillion, the Independent reported that Peter Kyle, MP for Hove, said that he wouldn’t trust KPMG to conduct an audit of the contents of his fridge.

 

In 2019 the Financial Times reported that though KPMG’s auditing of Carillion since 1999 has been under investigation by the Financial Reporting Council (FRC), the value of new UK public sector contracts awarded to KPMG increased more than fourfold last year. (opposite: Daily Mail graphic).

An official of the government’s Insolvency Service is now suing KPMG for £1.3bn

The charges include  failure “to remain independent from Carillion’s management” as audit partner Peter Meehan “repeatedly accepted hospitality from and offered hospitality to Carillion and its senior management” and “failed to respect the proper boundaries of the auditor-client relationship”(FT Feb. 2022).

The Financial Reporting Council (FRC), a body set up by government, the UK’s accounting and auditing regulator, is funded by the Institute of Chartered Accountants in England and Wales (ICAEW), to carry out investigations into allegations of members’ malpractice or inefficiency.

In August last year, CityAM reported that FRC’s independent tribunal found that KPMG and one of its partners did not comply with the UK professional accounting principles in June, while advising on the sale of Silentnight to US private equity firm HIG Capital through a pre-pack administration in 2011. 

The ICAEW – a body that aims to maintain the highest standards of professional competency and conduct – profits from members’ fines arising from those investigations started before 2016

Professor Prem Sikka raised the KPMG/Silentnight and the ICAEW episode in the Lords, pointing out that the £13 million fine for KPMG would not be paid to the members of the Silentnight pension scheme, who had lost some of their pension rights, but to the coffers of the Institute of Chartered Accountants in England and Wales.

He stressed that recognised professional bodies—must not benefit from the misconduct of their members, commenting: “In fact, they should be in the dock for authorising those members. What kind of supervision do they actually carry out?”

When considering reform of the Big Four, Lord Sikka (left) points out that there are constituencies wider than investor groups and City interests. His long-standing concern has been the relative neglect of those stakeholders.

He wonders if ICAEW’s management have ever met people who have lost their pensions, jobs, savings, homes due to poor accounting and auditing.

 

 

 

 

 

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A cashless society? Should banks, credit card & digital platforms control the money supply?

A warning from accountancy expert Prem Sikka (right): ‘Why we should resist the rush to a cashless society’ (summarised, with added illustrations)

In brick-and-mortar shops alongside cash people swipe debit/credit cards, digital wallets and mobile phones for their purchases. This has been taken to the next stage with the emergence of shops which accept electronic payments only. But cash remains king for most Britons. 97% of the population carries notes and coins in its wallets and 80% of people pay taxi drivers, newspaper sellers, window cleaners and gardeners with cash. At times of crisis, people may want to hold a cash reserve. In a fully cashless society, that possibility would not exist. The global picture:

Cashless shopping: corporations chase higher profits by using technology

Electronic payments are very profitable for global corporations like Mastercard, Visa, American Express, PayPal and can speed up purchases, while traders say that it reduces the inconvenience of the daily banking of cash, risk of theft and the cost of business insurance.

In February, Professor Sikka recalls, Tesco opened its first cashless store on Central London and joins a number of bars, cafes and restaurants who do not accept cash. This trend is likely to accelerate as corporations chase higher profits by using technology and employing fewer humans.

Of course, electronic transactions are not perfectly reliable or safe.

• • WiFi connections, computers and databases can be hacked.
  • Cards and mobile phones can fall into wrong hands and even be suspended, leaving customers and traders with no purchasing power.
  • Storms, floods and power outages can take down the whole systems, leading to economic hardship and chaos.  

Cashless shopping poses big societal challenges

A cashless society requires everyone to have a bank account, debit/credit card, subscription to some payment platform or equivalent, and these are not always free. Some 1.23 million Brits do not have a bank account. Another report estimates that over eight million UK adults, and their dependents, would struggle in a cashless society. The elderly, infirm, poor, young, the unemployed, and people with difficult credit histories would not easily be able to secure access to electronic payments systems.

https://labsnews.com/en/news/business/amazon-opens-cashless-supermarket-and-takes-the-format-to-a-new-level/

Migrants, refugees, temporary workers and homeless people won’t be welcomed by banks and given debit/credit cards. Some individuals with physical and mental health issues would find a cashless society difficult. A fully cashless society risks a form of economic apartheid – with a class of people shut off from the legal tender.

In a cashless society what privacy would there be for those sharing accounts – including those trapped in abusive relationships – if every transaction is visible to a partner?

To prevent social exclusions, San Francisco, New York City, Philadelphia, New Jersey, and Massachusetts have banned cashless retail trading in brick-and-mortar shops. The UK regulators should follow suit and ensure that cash is accepted by all brick-and-mortar retailers and utilities.

Professor Sikka warns: “The move to a cashless society would change political power in societies. Banks, credit card and digital platform companies will effectively control the entire money supply. Yet they are not accountable to the people in any way whatsoever – while the role of elected governments in managing the economy would be constrained”.

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Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor to LFF and tweets here. Read his article here: https://leftfootforward.org/2020/02/prem-sikka-why-we-should-resist-the-rush-to-a-cashless-society/

 

 

 

 

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Broken Britain 28: malpractice in the finance industry destroying savings and businesses

In February the House of Lords debated the Financial Services Bill. Professor Sikka refers us to the Hansard record in which he reports that government ministers and sundry neoliberals sang praises of the finance industry, deliberately ignoring its corrupt practices that have destroyed jobs, investment, savings and businesses.

Sikka comments: “We all use and value financial services of various kinds, such as bank accounts, loans, overdrafts, debit/credit cards. Insurances, pensions and foreign currency, but what we do not need are frauds and fiddles or speculative binges which created the 2007-08 crash”. 

Research shows that – contrary to the public relations image of the industry as a wealth extractor – the finance industry made a negative contribution of £4.5 trillion to the UK economy during the period 1997-2015.

His contribution to the Lords debate drew attention to abusive practices and he demanded an investigation into the conduct of the Financial Conduct Authority  (FCA) for “presiding over the sleaze” as a serial offender.

Banks have been accused of forging signatures to repossess people’s homes, businesses and savings. Professor Sikka has informed parliament that there are over 500 documented cases and a senior Metropolitan Police fraud officer wrote to the Treasury Select Committee in 2017, stating that the executive boards of some of the most prominent banks were “serious organised crime syndicates”. Yet there has been no investigation by the FCA.

He continues: “Financial malpractices have been rife in this industry for decades. In every decade since the 1970s, the UK has experienced a banking crisis, often caused by abusive practices” including:

• rigged interest and exchange rates
• bribery,
• corruption,
• tax avoidance,
• money laundering
• and sanctions-busting on a huge scale.

Successive governments have failed to clean-up the industry and misery has been created for many and profits for a few by numerous mis-sold financial products, such as:

• pensions,
• endowment mortgages,
• precipice bonds,
• split capital investment trusts,
• interest-rate swaps,
• mini-bonds
• and payment protection insurance

Goldman Sachs paid a fine of $2.9bn to US regulators to settle charges of bribery but did not draw any investigation from the UK regulators. Lax regulation gave us the 2007-08 financial crash which decimated the economy and we are yet to recover from it.

Professor Sikka notes that in 2017 Australia appointed a Royal Commission to clean-up its finance industry but the British government does not want any inquiry. This may be partly linked to cost of inquiry, but the status-quo imposes heavy costs on people who have been cheated out of their home, business, job, pension, savings and investment.

During the parliamentary debate there was considerable agreement amongst speakers – including Lady Noakes, Lady Bowles, Lord Davies and Lord Holmes – that the FCA has failed; a variety of proposals for parliamentary oversight were put forward by several speakers, outlining the importance of parliamentary and democratic oversight and the different levels and ways of delivering it. However, the Minister (presumably the Financial Secretary to the Treasury, MP Jesse Norman) was unmoved. He rejected all proposals.

Sikka concludes that the British government should mount an independent investigation into these failures which would hear from the victims of the industry. Finance executives need to be publicly examined on oath and crucial documents need to be subpoenaed to draw attention to the fact that malpractices are sanctioned at the highest level. The investigation should also highlight shortcomings of the legal framework. 

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Read the article here: https://leftfootforward.org/2021/02/prof-prem-sikka-the-fca-has-failed-to-clean-up-financial-corruption/

Prem Sikka is an Emeritus Professor of Accounting and a Labour member of the House of Lords.

 

 

 

 

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‘A race to the bottom’? Post-Brexit deregulation of workers’ rights – 1

Better regulation?

FT: Number 10 said the new committee will “refresh the strategy on making better regulation outside the EU, review existing rules and cut red tape for businesses”

The FT editorial board reports on the package of deregulatory measures being prepared by the UK’s business department with the approval of Downing Street. It has not yet been agreed by ministers — or put to the cabinet — but select business leaders have been sounded out on the plan, ‘according to people familiar with the matter’. Christopher Hope adds a title: “The Chancellor of the Exchequer is to chair a new Better Regulation Committee in Downing Street which will focus on cutting EU red tape for businesses.

“There are calls for deregulation and the Chancellor has promised to unleash Big Bang 2.0 for the City of London. The first big bang in unleashed in 1986 did not end happily”.

Accountancy professor Prem Sikka (right) continues: “The feather-duster regulation led to a tsunami of mis-selling financial products and the collapse of virtually every building society that converted to a bank. Banks rigged interest rates, exchange rates and indulged in frauds, culminating in the 2007-08 banking crash which ushered in never-ending austerity, and the economy is yet to recover from it.

“The state provided over £1tn of financial support to bail out banks. Far from being a boon, the finance industry has been a curse. One study estimated that between 1995 and 2015, the finance industry cost the economy £4.5tn to the UK economy and eroded the living standards of millions of people”.

The FT editorial focused on the current worker protections, ‘enshrined in EU law’. It pointed out that:

• the UK already has one of the most lightly regulated labour marketsin the OECD in terms of employment protection for individual workers.
• There is no evidence that business, which is already adjusting to Brexit and battling the fallout from the Covid-19 pandemic, is clamouring for a fundamental overhaul of workers’ rights,
• or that employers have complained of feeling unduly shackled by EU standards; pre-Covid, the UK’s employment rate was at a record high.

It commented that despite this and its election manifesto pledge that it would seek to “raise the standards in areas like worker rights” after Brexit, the government is considering whether to sacrifice worker protections previously enshrined in EU law.

And concluded: “there are legitimate targets for a government intent on taking cumbersome regulatory burdens away from business, but worker protection is not one of them”.

 

 

 

 

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Calls for a public enquiry into awards of Covid-related contracts

The original brief of this website, set up ten years ago, was to raise awareness of the ‘revolving door’, rewards for failure, widespread behind-the-scene lobbying and party funding which corrupts the decision-making process here and abroad. There is currently a resurgence of such concerns, expressed here by Professor Prem Sikka and later by Sophie Hill, a PhD student.

On 6th November Professor Prem Sikka wrote an article showing the imperative for a public inquiry into how Covid contracts are handed out.

Two weeks later a Hackney reader sent this link to a Metro article which reported that  Sophie Hill, a British PhD student in Government at Harvard University, had created a ‘My little Crony’ map – snapshot below.

She wrote on Twitter: ‘The cronyism in this Tory government is so out-of-control that I honestly couldn’t keep track… so I combined my two main skills (puns and Rstats) to create this interactive visualisation. ‘We all understand that the Government had to act quickly during the pandemic. But that is no excuse for cronyism and incompetence.’ Government outsourcing during the pandemic.’

To see this in action go to ‘My little Crony’ map 

Ms Hill says:

• The “My Little Crony” interactive map shows that the special, special adviser’s relation. head of the Vaccine Taskforce, Kate Bingham, spent £670,000 of taxpayers’ money hiring PR consultants through a firm called Admiral Associates. And the secretary of the firm is a long-time business associate of chief advisor Dominic Cummings’ father-in-law.
• it was reported in September that Globus (Shetland) Limited, which has donated more than £400,000 to the Conservatives since 2016, won a £93.8 million Government contract for the supply of respirator face masks.

And ends: ‘I hope people will explore the map and decide for themselves about whether this government is acting in the best interests of the country.’

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Professor Sikka says: “Cronyism, corruption, incompetence and inefficiencies have become hallmarks of coronavirus related contracts”.

He records several of the large contracts given to fledgling companies with no experience of PPE, noting that many suppliers had links to donors to the Conservative Party and MPs:

• Since August 2015, Conservative MP Owen Paterson has been a consultant to Randox receiving £8,333 a month for 16 hours work, which is about 6 months wages for someone on the minimum wage. A £347m Covid-19 testing contract has been given to Randox, whose testing kits were recalled because of concerns about contamination. Was this a coincidence?
• Meller Designs Limited, a Conservative Party donor, secured a £155m PPE contract.
• a £3m contract given, without competitive tender, to a company called Topham Guerin. The company’s controllers appear to be friends of Dominic Cummings and Michael Gove, two leading powers in the Johnson administration.
• Leaked documents show that a number of consultants, including Serco, G4s, PricewaterhouseCoopers, Deloitte, KPMG and Ernst & Young have received test and trace and other contracts. Some are charging £7,000 a day. The firms have no history of delivering test and trace or management of viruses, but still secured multi-million pound Covid-related contracts.

Professor Sikka  notes that the National Audit Office has begun an inquiry into the supply of PPE to the NHS and adult social care sector; he adds that this needs to be supplemented with an examination of all PPE, test and trace contracts. ending:

The House of Commons Public Accounts Committee needs to question ministers and senior civil servants about the award of contracts to Tory cronies. This should be followed by an independent public inquiry into every aspect of the government’s shambolic handling of the pandemic, which has led to thousands of avoidable deaths, major damage to the economy and the lives of many. 

 

 

 

 

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COVID-19 bulletin 30: post lockdown, government has the resources to invest and reflate the economy

Professor Sikka advocates investment to rebuild the economy of Britain, which entered the coronavirus crisis with poor social infrastructure and deep inequalities. Points made in two of his recent articles.

The crisis showed that the low-paid workers such as nurses, midwives, care workers, supermarket staff, teachers and bus and delivery drivers were the lifeline of society. Detailed figures for the cuts to the police and NHS are given in his May article

Treasury documents leaked to The Telegraph show a government blueprint for recovering £300bn of the costs associated with the coronavirus pandemic.

• It lists government plans to scrap the triple-lock on the state pension the main source of income for many, which is around 29% of average earnings, the lowest among industrialised nations. The proportion of retirees living in severe poverty in the UK is five times what it was in 1986. So there is no economic or moral case for hitting retirees.
• There is already talk of further wage freezes for public sector workers.
• Influential think tanks like the Institute for Fiscal Studieshave called for a cut to the minimum wage.
• The Social Market Foundation is urging the government to hit the state pension, already one of the lowest in the western world.

Sikka (right) describes the government’s post-coronavirus economic strategy as, “more austerity, hit the poor, cut essential services”. And continues:

We have the money to build a better society after this crisis: there is no shortage of resources

With record low interest rates, government can borrow to invest and reflate the economy – just as the economy was rebuilt after the Second World War – and the subsequent prosperity enabled governments to reduce the public debt.

He adds that the government can use its overdraft facility known as the “ways and means” facility at the Bank of England. The Treasury has used £400m so far and during the 2008 recession it used £19.8bn.

The Bank of England is using its £645bn quantitative easing programme, i.e. printing money, to support purchase of corporate bonds. The government could use the same process to bail out the poor by buying their debts.

Economist Martin Wolf agrees in the FT today: “It is equally vital to support the economy for as long as is needed to ensure a full recovery. Given the Bank of England’s welcome and sensible support, the government can afford to borrow on a huge scale and must be willing to do so”.   

Tax related measures advocated include raising additional tax revenues without increasing the basic rate of income tax or national insurance contributions. Investment in HMRC and curbing offshore tax avoidance could raise billions.

But corporations are already undermining our welfare

Sikka points out that the government has given billions of pounds to businesses in the form of business rates holidays, wage subsidies, cheap loans and guarantees; all without any obligations to safeguard jobs. This has freed corporations to reduce wages and cut or downgrade the jobs of workers; examples cited in detail in his June article relate to British Airways, Bam Construct, Ryanair,  Daily Mirror, Daily Express and P&O.

Cuts to public services will damage the private sector which is the main supplier 

Wage and pension cuts will severely erode people’s purchasing power; they will not be able to buy goods/services produced by businesses and the economy will stall.

But the Conservative government – with its large parliamentary majority – is not in a mood to listen. Shall we on the left be able to reposition people’s awareness and press the government to change its policies?

The new economy must work for everyone, not just shareholders and financial speculators. Parliament needs to make the right choices and build a sustainable economy by investing, creating resilient public services and boosting people’s purchasing power. 

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Sources:

https://leftfootforward.org/2020/06/elites-will-use-this-crisis-to-reshape-the-state-we-have-to-push-back/

https://leftfootforward.org/2020/05/prof-prem-sikka-we-must-rebuild-not-tax-and-cut/

 

Prem Sikka is Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex. He is a Contributing Editor to LFF and tweets here.

 

 

 

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Labour has pledged to end deregulation of housing construction and ‘human warehousing’

 

Deregulation is posing problems in many sectors. Recently it was announced that the House of Commons Business, Energy and Industrial Strategy Committee is to examine Thomas Cook’s ongoing corporate governance, accounting, auditing and regulatory failures, ‘while the gravy train for directors continued’ (Prem Sikka, September).

Advocates of deregulation – the reduction or elimination of government power (state rules) – say that it removes unnecessary bureaucracy and barriers to competition.

Prem Sikka (Professor of Accounting at University of Sheffield) now turns to the effect of deregulation on social housing. He focusses on the controversial ‘permitted development’ (PDR) system for the delivery of new homes which Labour has pledged to end – a decision commended by the Town and Country Planning Association. Reports last year highlighted the poor quality homes coming through the permitted development system and a get-out clause that exempts schemes from providing vital social and affordable housing.

Human warehousing

The permitted development system has led to the delivery of homes as small as 13 square metres – smaller than the average living room. A BBC report about an office-to-residential permitted development conversion carried out by Caridon Property is quoted by Shelter. It has been used as temporary accommodation since 2018 and the homeless families with children crammed into tiny ‘studio flats’ have to ‘eat, drink and sleep in their beds’.

A London Assembly study also noted that many PD homes are smaller than the minimum space standards and exacerbate the already huge issue of overcrowding – and by avoiding the planning system, developers are no longer obliged to contribute to the provision of affordable housing.

Newbury House in Ilford offers flats that apparently measure as little as 3.6 metres by 3.6 metres (12ft x 12ft), with residents packed in “like sardines”, a busy six-lane highway just yards away, broken glass and rubbish strewn all around outside.

The Developer, which informs and connects professionals working in urban development and design, adds more detail and is campaigning for these potentially dangerous conversions to be stopped.

A study by the Royal Institute of Chartered Surveyors which examined the quality of PD in parts of Camden, Croydon, Leeds, Leicester and Reading, concluded that PD has allowed extremely poor-quality housing to be developed and PD residential quality was significantly worse than schemes which required planning permission – particularly in office-to-residential conversions. Of 568 buildings studied, another report found an inconsistency in the quality of developments, with only 30% of units delivered through permitted development meeting national space standards.

And Conservative MP for Harlow Robert Halfon (left) agrees with Sikka’s October verdict: ‘Government deregulation of housing construction is delivering social cleansing and the slums of the future’.

In 2013 – following pressure from ‘profit hungry’ property developers – the Conservative and Liberal Democrat coalition government deregulated and disempowered local councils, passing legislation enabling developers to convert office blocks, agricultural buildings and warehouses into residential properties without full planning permission.

Richer councils are sending people to poorer areas already facing acute economic problems as part of a social cleansing process. Families with children, senior citizens, low-paid, the unemployed, people with special needs and others, faced with the choice of long waiting lists for housing, temporary accommodation, dilapidated housing and high rents by private landlords, have been persuaded to relocate to another area.

As part of a recent research project, Sikka met council leaders from many of these poorer areas, struggling to cope with the problems caused by deregulation and the loss of central government funding to local councils since 2010 cut by 26% in real terms. He writes:

“The class nature of permitted developments (PD) is evident as there are more PDs in Harrow and Hounslow compared to wealthy Kensington and Chelsea. They have been a boon for housing developers. The chief executives of this country’s ten biggest developers received a combined £63.6m last year for building slums, called by some, ‘human warehousing’ “.

Poorer areas already struggling to cope with acute economic problems have to find new jobs, schools, transport, family doctors and hospitals, without prior planning or resources, while richer areas with lower numbers of people on benefits, lower unemployment rates and less pressure on local schools, hospitals and social infrastructure, embark on the process of gentrification.

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Professor Sikka’s article may be read here.

 

 

 

 

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Broken Britain 16: HMRC refuses to investigate money-laundering and tax fraud charges by largest Conservative donor

Three classes of British looting: which is the most culpable?

Professor Prem Sikka, Professor of Accounting at University of Sheffield and Emeritus Professor of Accounting at University of Essex, draws attention to the case of the UK telecoms giant Lycamobile, the biggest donor to the Conservative Party, which has accepted £2.2m in donations since 2011.

Her Majesty’s Revenue and Customs (HMRC) has refused to assist the French authorities and raid Lycamobile’s UK premises in order to investigate suspected money laundering and tax fraud.

Economia, the publication for members of the Institute of Chartered Accountants in England and Wales (ICAEW) which covers news and analysis on the essential issues in business, finance and accountancy, reports:

Following an initial denial (left, Financial Times), Economia confirmed that in an official response to the French government dated 30 March 2017,  a HMRC official noted that Lycamobile is “a large multinational company” with “vast assets at their disposal” and would be “extremely unlikely to agree to having their premises searched”, said the report.

The letter from HMRC to the French government added, “It is of note that they are the biggest corporate donor to the Conservative party led by Prime Minister Theresa May and donated 1.25m Euros to the Prince Charles Trust in 2012”.

This is an ongoing saga: in 2016 Economia noted: “The Tories have come under fire for continuing to accept donations of more than £870,000 from Lycamobile since December, while it was being investigated for tax fraud and money laundering”.

In 2016 In May it emerged that KPMG’s audit of Lycamobile was limited due to the complex nature of the company’s accounts. Later, KPMG resigned saying it was unable to obtain “all the information and explanations from the company that we consider necessary for the purpose of our audit”.

HMRC: “has become a state within a state”.

Prem Sikka (right) continues, “The House of Commons Treasury Committee is demanding answers to the Lycamobile episode – but HMRC is unlikely to prove amenable”.

In recent years, the Public Accounts Committee has conducted hearings into tax avoidance by giant global corporations such as Microsoft, Amazon, Google, Starbucks, Shire and others. The hearings have not been followed by HMRC test cases.

The Public Accounts Committee has also held hearings into the role of the large accountancy firms in designing and marketing avoidance schemes and exposed their predatory culture. In a telling rebuke to PricewaterhouseCoopers, the Committee chair said: “You are offering schemes to your clients—knowingly marketing these schemes—where you have judged there is a 75% risk of it then being deemed unlawful. That is a shocking finding for me to be told by one of your tax officials.”

Despite the above and numerous court judgments declaring the tax avoidance schemes marketed by accountancy firms to be unlawful, not a single firm has been investigated, fined or prosecuted.

There are real concerns that HMRC is too sympathetic to large companies and wealthy elites.

A major reason for that is the ‘revolving door’, the colonisation of HMRC by big business and its discourses: its current board members include non-executive directors connected with British Airways, Mondi, Anglo American, Aviva, PricewaterhouseCoopers and Rolls Royce.

After a stint at HMRC many of the non-execs return to big business. Corporate sympathies are therefore not counterbalanced by the presence of ordinary taxpayers or individuals from SMEs and civil society.

Sikka ends: “In such an environment, it is all too easy to turn a Nelsonian eye on corporate abuses and shower concessions on companies and wealthy individuals”. Read more here.

 

Why should we care?

Because tax revenue pays for the services used by all except the richest, the education health, transport and social services, increasingly impoverished by funding cuts imposed by the last two British governments.

The Shadow Chancellor has twice called for more rigorous examination and tightening of processes at HMRC to ensure that corporations and wealthy individuals are free from political corruption and pay fair rates of taxes.

Will the next government elected be for the many, not the few?

 

 

 

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Broken Britain 15: “Cruel, rigid bureaucracy has replaced common sense in this country”

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So writes Peter Hitchens, summarising the unease felt by many in his recent article. He was focussing on the events leading up to the anger felt about the treatment of the ‘Windrush generation’, regarded now ‘by most of us . . .  as something pretty close to family’.

He speaks of ‘the real lesson of the wretched treatment of longstanding British subjects who have been deprived of medical service, threatened with deportation and generally destroyed and trampled on by callous officials . . . deprived of the most basic freedoms and of entitlements they have earned by long years of working and taxpaying.’

After tracing the political trend from New Labour measures to Theresa May’s ‘Go Home’ lorries trundling around London’ he describes increasing ‘tough’ measures as a London liberal’s idea of what might please the despised voters.

Frankly it’s hard to see how the capital could function without foreign nannies, cleaners and gardeners

In a 2009 article, Andrew Neather reviewing the New Labour policies, ‘laced with scorn for working-class people worried about the immigration revolution’, said:

‘The results in London, and especially for middle-class Londoners, have been highly positive. It’s not simply a question of foreign nannies, cleaners and gardeners – although frankly it’s hard to see how the capital could function without them. Their place certainly wouldn’t be taken by unemployed BNP voters from Barking or Burnley.’

The post-Brexit plight of EU nationals

Last year there were reports about the post-Brexit plight of EU nationals who experienced the bureaucratic maladministration and occasional cruelty from which the country’s poorest have suffered for decades.

Universal Credit system

The most recent example, reported in The Financial Times, referred to the rollout of Britain’s “Universal Credit” benefits system, challenged by more than 120 MPs saying that delayed payments are leaving poor households exposed.

Food and heating

Recently Professor Prem Sikka tweeted about 21st century Britain: He linked to a BBC report about a separate survey for the Living Wage Foundation which says that a third of working parents on low incomes have regularly gone without meals, because of a lack of money. Around a half of those families have also fallen behind with household bills.

It also quoted Citizens Advice findings that as many as 140,000 households are going without power, as they cannot afford to top up their prepayment meters. The survey conducted by Citizens Advice found, “most households that cannot afford to put money in the meter contain either children or someone with a long-term health condition. Some people are left in cold houses, or without hot water”.

Sure Start

The Coalition and later Conservative governments’ cuts largely dismantled the Sure Start network, created by Labour to support families in the early years of their children’s development.

Youth Work

Unison has been working on this for some time – its 2016 report, A Future at Risk, found that £387m had been cut since the Tories took power. That’s over 600 youth centres and 140,000 places for young people.

People with disability

One of many austerity measures reported here is the cuts to school transport for disabled children. This, and many more examples of ‘cruel, rigid bureaucracy, may be seen on the website Disability United.

Sikka summarised: “Poorest families are going without food or power. Wealth is concentrated in relatively few hands and governments shower tax cuts on corporations and wealthy elites. Inequitable distribution of income/wealth is a recipe for social instability”.

 

 

 

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