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The unacceptable face of capitalism

29 April 2016

The demise of BHS reveals a wider problem in big business, says Paul Vallely


TO HEAR ourselves as others hear us: there was a finance expert on the radio this week, defending the way that the pension industry works. It is fine, she said, for companies to pay money out to shareholders — even when there is a gaping black hole in the company pension fund. Really?

The unfashionable clothing chain BHS collapsed this week, leaving 11,000 staff and 20,000 pensioners facing an uncertain future with a £571-million deficit in its pension fund. Politicians and the press were clear about the chief villain of the piece: Sir Philip Green pocketed £400 million from BHS before selling it for just £1 last year to an obscure consortium, led by a man who has been declared insolvent no fewer than three times.

Sir Philip had loaded the company with debt, failed to invest properly in the business, and paid hundreds of millions in dividends to his wife, Tina, via the tax haven of Monaco, the MP Iain Wright, chairman of the Commons Business Select Committee, said. The sums involved, according to the Daily Mail, were about the same as those the Greens have spent on three superyachts, the latest of which is four storeys high and is the length of a football pitch. The paper branded the tycoon “the unacceptable face of capitalism”. One MP suggested that he be stripped of his knighthood.

To his credit, Sir Philip has offered to put £80 million into the fund, although the Pensions Regulator is said to want nearer £300 million from him. Either would be small beer to the Greens, who are worth £3.2 billion, according to The Sunday Times’s Rich List.

Yet there is more to “the unacceptable face of capitalism” than one man. BHS may be a worst-case scenario, but something similar has happened to many companies over the past two decades. Leveraged buy-outs have allowed individuals to borrow money to buy big-name companies, and then transfer the purchase debts on to the company. That is what the Glazer family did to Manchester United, turning the club’s bank balance from black to red.

Clever accounting enables individuals to load a company with debt, and then set the interest against profits — and so to pay hardly any tax. Six of our water companies have done that. In the mean time, the liabilities of company pension funds have mushroomed, as interest rates fell to record lows after the financial crash of 2008.

It is all perfectly legal, chirruped the finance expert on the radio. Indeed: “It’s reasonably common to load a company with debt, take out money, and hope for the best later.” It may be legal and common, but is it moral or sustainable?

A writer in The Financial Times, tongue-in-cheek, went further. All this was simply efficient capitalism in action: “BHS has been in a vegetative state for 20 years: leveraging up the near-corpse allowed the Greens to pump money into other job-creating things, such as the crafting of a solid-gold Monopoly set, featuring Tina’s high-street acquisitions.” What is unacceptable in capitalism goes well beyond the face of Sir Philip Green.


Paul Vallely is Visiting Professor in Public Ethics at the University of Chester.


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