The Corporate Welfare State
In the documentary series which finished on Friday evening, the heiress Tamara Ecclestone set out to prove that she isn’t “a pointless, quite spoilt, really stupid, vacuous, empty human being”(1). This endeavour was not wholly successful. Channel 5 showed her supervising the refurbishment of her £45m home in London, in which she commissioned a £1m bathtub carved from Mexican crystal, an underground swimming pool complex, her own nightclub, a lift for her Ferrari, a bowling alley with crystal-studded balls and a spa and massage parlour for her five dogs, to save her the trouble of taking them to Harrods to have their hair sprayed and their nails painted. But there was something the series didn’t tell us: how much of this you helped to pay for.
In court a fortnight ago, her father, the Formula One boss Bernie Ecclestone, revealed that the fact that his family’s offshore trust, Bambino Holdings, was controlled by his ex-wife rather than himself could have saved him “in excess of £2bn” in tax(2). The name suggests that the trust could have something to do with supporting his daughter’s attempt to follow the teachings of St Francis of Assisi.
Ecclestone has also been adept at making use of the corporate welfare state: the transfer by the government of wealth and power from the rest of us to the 1%. After the mogul made a donation to Labour’s election fund, Tony Blair demanded that Formula 1 be exempted from the EU’s ban on tobacco sponsorship. The government built a new dual carriageway to his racetrack at Silverstone(3).
In other countries his business has received massive state subsidies. Russia, for example, has recently agreed to build a circuit for Mr Ecclestone, and then charge itself $280m for the privilege of letting him use it(4). Working in India in 2004, I came across the leaked minutes of a cabinet meeting in which the consultancy McKinsey insisted that the desperately poor state of Andhra Pradesh – where millions die of preventable diseases – cough up £50-75m a year to support Formula 1. The minutes also revealed that the state’s chief minister had lobbied the prime minister of India to exempt Ecclestone’s business from the national ban on tobacco advertising(5).
Socialism for the rich, capitalism for the poor: that is how our economies work. Those at the bottom are subject to the rigours of the free market. Those at the top are as pampered and protected as Tamara Ecclestone’s dogs.
On Tuesday the Chancellor, George Osborne, decided at last to review the private finance initiative (PFI), under which the companies building public infrastructure made stupendous profits while the state retained the risks(6). But if you thought that Osborne’s decision represented a wider shift in policy, you’ll be sorely disappointed. Two days later he agreed to sell the state-owned bank Northern Rock to Richard Branson. Under the deal, the state keeps the liabilities while Branson gets the assets: rather like PFI. The loss equates to £13 for every taxpayer(7).
Someone who will not suffer unduly from being touched for £13 is Matt Ridley. As chairman of Northern Rock, he was responsible, according to the Treasury select committee, for the “high-risk, reckless business strategy” which caused the first run on a British bank since 1878(8). Before he became chairman, a position he appears to have inherited from his father, Matt Ridley was one of this country’s fiercest exponents of laissez-faire capitalism. He described government as “a self-seeking flea on the backs of the more productive people of this world … governments do not run countries, they parasitise them.”(9)
The self-seeking parasite bailed out his catastrophic attempt to put his ideas into practice, to the tune of £27bn. What did the talented Mr Ridley learn from this experience? The square root of nothing. He went on to publish a book in which he excoriated the regulation of business by the state’s “parasitic bureaucracy” and claimed that the market system makes self-interest “thoroughly virtuous”(10).
Having done his best to bankrupt the blood-sucking state, he returned to his family seat at Blagdon Hall, set in 15 square miles of farmland, where the Ridleys live – non-parastically of course – on rents from their tenants, hand-outs from the Common Agricultural Policy and fees from the estate’s opencast coal mines(11). No one has been uncouth enough to mention the idea that he might be surcharged for part of the £400m loss Northern Rock has inflicted on the parasitic taxpayer. It’s not the 1% who have to carry the costs of their cock-ups.
Even in the midst of this crisis, when the poor are being hammered on all sides, the government still seeks to transfer their meagre resources to the rich. Last month Vince Cable’s business department listed five employment rules that businesses might wish to challenge. Among them were the national minimum wage and statutory sick pay(12).
On Friday, David Cameron opened negotiations with Angela Merkel over the Eurozone crisis. His two principal demands were that there should be no Robin Hood tax on financial transactions and that the working time directive, which prevents companies from exploiting their staff, should be renegotiated(13,14).
Just as instructive was what he did not discuss. In fact, as far as I can tell, none of the European leaders have yet mentioned it in their summits, even though it accounts for almost half the EU’s spending. It is of course the agricultural subsidy system, which now costs British taxpayers £3.6bn a year(15).
We like to imagine that this money supports wizened shepherds who tie up their trousers with bailer twine, but the major beneficiaries are people like the Ridleys. The more land you own, the more support you receive from the state. The Common Agricultural Policy is a massive state subsidy to the richest people in Europe: the aristocrats and plutocrats who possess the big holdings. British politicians pretend that it is protected only by the French. This is bunkum: in February a House of Commons committee demanded not only that the existing subsidy system be sustained but also that we should reinstate headage payments, encouraging farmers to produce food nobody wants(16).
Last week the Guardian exposed a system which looks like state-enforced slavery. To qualify for the £53 a week they receive in Job Seekers’ Allowance, young people are being forced to work without pay for up to eight weeks for companies such as Tesco, Poundland, Argos and Sainsbury’s(17). Some of the nation’s poorest people, in other words, are being obliged by the state to subsidise some of its richest businesses, by giving them their labour.
For the corporate welfare queens installing their crystal baths, there is no benefit cap, no obligation to work, in some cases no taxation. Limited liability, offshore secrecy regimes, deregulation and government handouts ensure that they bear none of the costs their class has inflicted on the rest of us. They live at our expense, while disparaging the lesser mortals who support them.
8. Treasury Select Committee, 2008. Fifth Report.
9. Matt Ridley, 22nd July 1996. Power to the people: we can’t do any worse than government. The Daily Telegraph.
10. Matt Ridley, 2010. The Rational Optimist: how prosperity evolves. Fourth Estate, London.
15. DEFRA press office, 31st August 2011. By email.
16. House of Commons Environment, Food and Rural Affairs Committee, 9th February 2011. Farming in the Uplands. http://www.publications.parliament.uk/pa/cm201011/cmselect/cmenvfru/556/556.pdf