My Lords, it is a pleasure to follow the noble Baroness. She always makes interesting speeches, some of which she and I have discussed over cups of tea outside the Chamber. Given the exigencies of the five-minute limit, I hope she will forgive me if I do not take up her points and instead go straight to the issues that I wish to raise with the Government as they set out their plans for the next five years.
In summary, I want to draw the Government’s attention to some weakness in the way our economic system currently operates and make some suggestions for its improvement. At the outset, I want to make it clear that I am a strong supporter and defender of the
market-led economic system, but the fact that I am such a strong defender and supporter does not mean that I think it is incapable of improvement or above reproach. I must say, I have had to reach the conclusion that the system, in its present configuration and in recent years, has not delivered rewards sufficiently fairly across all sectors of society and all regions of the country.
On behalf of the Labour Party, Jeremy Corbyn hinted at some of this during the last general election campaign. The fact that his solutions were, frankly, beyond ridiculous should not blind us to the somewhat unpleasant fact that, nevertheless, there are questions that require a substantive response. Such a response will certainly be needed from this new Conservative Government if we are to keep faith with those voters who turned the red wall into a blue one. There is, therefore, a pressing need to create what might usefully be described as a more responsible capitalism. I congratulate the Government on the approach and tone that they have adopted so far. These are, however, early days, and I note that familiar country phrase: fine words butter no parsnips.
What practical steps should the Government now take? First, they should, without delay, introduce legislation to reconstruct the UK’s inadequate audit regime. There is general agreement, supported by the Government’s own reviews, that the present system no longer retains public confidence. A proper audit regime is an essential building block in the establishment of a more responsible capitalist system, so it is particularly disappointing that the Government intend to bring forward such legislation only, to use that famous Whitehall phrase, when time allows.
The Government could also usefully institute a much wider and in-depth consideration of the pinch points of modern capitalism. This could include: first, an analysis of the consequences of the different tax treatment of interest on borrowing, which is tax deductible, and on dividends, which is not; secondly, consideration of whether share purchases should give immediate rights of ownership of the enterprise or whether some period of longevity should be required; and, thirdly, consideration of the asymmetric nature of the risks in modern corporate activity, with some groups able to insulate themselves and some—mostly workers in factories—unable to do so. Finally, and perhaps most controversially, it could include consideration of whether limited liability status should become a privilege, not a right, so that in cases of particularly egregious personal behaviour, individuals could face the full consequences of their actions.
Responsible capitalism could not, will not and should not be created by government alone. It will require a wholehearted commitment by British industry and commerce, in particular its leaders and trade associations, to change the culture and end the sense of entitlement that has prevailed in recent years and has so disfigured the corporate scene. Profit of itself is not a business purpose; it is the result of creating and selling a product or a service that people wish to purchase. There is therefore in business a moral dimension, and a failure to make this distinction has damaged the reputation of our industrial and commercial sectors.
Let us take this week’s example of Mr Neil Woodford, fund manager extraordinaire, whose fund has performed so badly that redemptions have been stopped and investors cannot withdraw their money. How can Mr Woodford look at himself in the mirror and say it is fair that he should personally withdraw £9 million-worth of dividends from his fund management company, let alone justify that to a wider audience and the wider world? Our market system can, should and must do better than that.
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