A few thoughts on 50p

Given that there is quite a bit of commentary about the top rate of tax knocking about, I thought I would pitch in my own random thoughts.

1. I realise that I have lost any emotional attachment to high rates of tax for high earners for their own sake. There was a time when even if I heard a convincing argument for cutting top rate tax my emotional reaction would kick in and ensure I either didn't think about it too much (and thus might need to change my view) or give me a spur to find a counter argument. For whatever reason, and I'm geniunely not sure why, I don't have that reaction now. I could be convinced to cut taxes at the top end.

2. But I don't find the arguments advanced so far for cutting the top rate convincing. I don't believe current rates act as a major disincentive, nor do I think therefore they impede growth. What's more, in common with others, I find the attention focused on the 'burden' on the 'wealth creators' rather irritating. It sends out the messages that a nation of 60 odd million is hugely dependent on the magical talent of a few thousand.

3. Unfortunately, however, the current system does mean that we raise a lot of a relatively small number, and if a fair chunk did decide to emigrate it would leave a hole. It's a big if, given the failure of a threatened tax exodus* to materialise on numerous occasions, but we should consider the possibility. But then doesn't that actually suggest we might want to try a combo of a lower rate but kicking in lower? Just a thought.

4. If the new top rate doesn't raise much, isn't that more an argument for closing down loopholes than anything else? If my tax rate was put up I would simply end up paying it, I've never really understood how/why it us that people earning a lot more than me are able to avoid this.

5. Let's be honest - there was a huge dollop of politics in introducing the 50p rate in the first place. It is already proving it's value in that respect, as the Tories give the impression of genuinely not knowing what to do. It's a bit enjoyable to watch, but not really how we should decide tax policy.

* movement of ok yah people

Getting away with it

Great blog from Faisal Islam here. Some crazy stuff from Darling's book:

The stuff about bankers is far far more important and of direct relevance today, as our politicians could launch the biggest shake-up of Britain’s banking system in decades. Darling was, after all, the man who signed the cheques. There’s some astounding detail.

* the angry phone call from one of the world’s top bankers after Darling brought in the bonus tax, where the banker seems to threaten not to buy UK Government debt. Extraordinary.

* HBoS trying to buy Bradford & Bingley, even as it was in deep trouble itself.

* HBoS requiring £16bn of overnight funding to keep going.

* confirmation that RBS cash machines were two hours from closing in October 2008.

If I read that first bullet point right, it appears that a banker was threatening the Government over tax policy. I have no doubt that they try and pull similar sh1t now. In the 70s we reached a crisis point in politics - "who governs?" - do we face something similar now, with the failure of private sector power in the banks, News Corp etc to accept accountability?

Hacked off, but...

This is rather important. Transcript of yesterday's DCMS hearing here, and a key bit from Tom Crone's evidence:

Crone: Well I explained the For-Neville email for him [James Murdoch] yes…What I explained to him, and I can’t give it in clear accurate detail because I can’t remember, but there was only one reason we settled the Taylor litigation, and there was one reason therefore why we went to him to settle the Taylor litigation, and that was the emergence of a document which consisted of an email transcript sent by one of our junior reporters to Glen Mulclaire, and that transcript consisted of voicemail messages left to and by Gordon Taylor.

Watson: So he would have been aware that another member of staff had transcribed intercepted voicemail messages.

Crone: I explained the email to him,yes.

Watson: Did he then apply the company’s zero tolerance to wrongdoing policy and suspend that staff member?

Crone: No.

Watson: So here’s someone that you know has intercepted a transcript message of an illegally hacked phone by the criminal private investigator Glen Mulcaire… And none of you do anything about it? Including James Murdoch.

Crone: The document wasn’t evidence that the junior reporter had intercepted phone calls, but that he had transcribed, presumably from a tape or a disc, a number of voicemail messages. Therefore, what the evidence meant was that Mulclaire’s illegal activity in accessing Gordon Taylor’s voicemail messages, that evidence of that had passed through our office. The News of the World was implicated certainly by knowledge that Glenn Mulcaire had done that.

Watson: That others were aware of phone hacking other than Clive Goodman?

Crone: Yes

Watson: Nobody did anything?

Crone: (Shakes head to suggest no)

Watson: What did James Murdoch say when you put that to him?

Crone: I can’t remember

Watson: You remember telling him that was the case but you can’t remember what his reply was.

Crone: I would have explained the background of the litigation, I would have explained the stance we had taken up to the emergence of this document, and I would have explained what this document was and what it meant.

Watson: Why did he agree to settle?

Crone: That was the advice he was certainly getting from me and from the outside lawyers….

Watson: Why did he agree to settle for so much money?

Crone: In order to get out of a case.

Watson: Isn’t it the case that he was well aware that you would buy the silence of Gordon Taylor if you settled for £425,000?

Crone: The priority at that time was to settle this case, get rid of it, contain the situation as far as four other potential litigants are concerned and get on with our business.

Watson: He knew full well to settle for that amount of money would conceal the For-Neville email.

Crone: We couldn’t reveal the For-Neville email, because it had been given to us under very, very strict terms of confidentiality, imposed almost certainly by Mr Taylor and, I think, the Metropolitain Police. And there’s nothing covered up, [speaking over Watson] can I make something clear which seams to be missed, very regularly, possibly by this committee, and that is that the provenance of the document was the Metropolitan Police. It was a Metropolitan Police document, coming out of their files. How can we be accused of covering up something that has reached us through the police?

Watson: Are you aware that the previous legal guy from the company, Mr Chapman, said that in any case a confidentiality clause wouldn’t stand up…in a criminal investigation, so how could Taylor force you to a clause of confidentiality on an email that suggesting more criminal wrongdoing. You must have known that, you’re a lawyer yourself?

Crone: …What confuses me here is that you seem to be missing what I just said, this document came from the police. Its not as if it hasn’t been looked at, considered. Experts paid close attention to it in the appropriate area, which is the police force of this country.

Watson: The police will have questions to answer as well. But it is the case that you knew that if a crime had been committed Taylor’s lawyers could not hold you to a confidentiality clause, you knew that didn’t you? You’re a media lawyer, you’re a barrister.

Crone: Well, there’s a confidentiality clause agreed by both sides in a piece of civil litigation and normally that would mean to stick to the confidentiality clause I’m afraid, that’s what’s called straight dealing.

Directors' pensions: enormous

The TUC's annual report on directors' pensions is out today.

Top bosses' pension pots increase to £3.9 million

Directors of the UK's top companies have amassed pension pots worth an average of £3.9 million, according to the TUC's ninth annual PensionsWatch survey published today (Wednesday).

PensionsWatch, which analyses the pension arrangements of 362 directors from the FTSE 100 companies, shows that the average transfer value (pension pot) for a director's defined benefit (DB) pension is £3.91 million - providing an annual pension of £224,121. The biggest pension pot in this year's survey is worth £21.5 million.

PensionsWatch shows that the average director's pension is 23 times the average occupational pension (£9,568), and 34 times bigger than the average public sector pension (£6,497).

The survey shows that despite the move away from DB pensions for most workers, the majority of companies (58 per cent) still provide these schemes to at least some of their directors. For the first time however, a minority of directors (145) are in DB schemes.

PensionsWatch shows that directors are also able to build up their pension pots far quicker than other staff. The most common accrual rate - the proportion of pay that a person receives as pension for each year they have been in the scheme - is 1/30th for directors. The most typical accrual rates for ordinary scheme members are 1/60th to 1/80th.

As more directors move to defined contribution (DC) schemes, PensionsWatch finds that the average company contribution has increased by £26,000 on last year to reach £161,149. For executives with the highest contribution in the company the average amount paid in is £211,859.

The most common Normal Retirement Age (NRA) is 60, with three times as many directors able to retire at 60 than 65. In contrast, the most common NRA for ordinary scheme members is 65, and this is expected to rise further for most public and private sector workers.

Many directors receive cash payments instead of participating in company pension schemes. The average cash payment was £138,436, an increase of £17,530 on last year. The biggest cash payment was £620,700.

Several FTSE 100 companies have announced changes to group pension schemes for staff in the last year, including some scheme closures. With directors' platinum-plated pensions rising year on year, it is inexcusable for companies to continue to chip away at pensions for other staff so that just one in three private sector workers is in an employer-backed scheme, says the TUC.

The TUC believes that private sector companies should follow the example of the public sector, where all staff are members of the same company pension scheme and enjoy the same benefits.

The TUC is calling for greater clarity in the reporting of pensions, including the mandatory disclosure of accrual and contribution rates. With pay and bonuses increasingly under public scrutiny, it is crucial that shareholders are also able to examine directors' pension arrangements, says the TUC.

Pensions will be a hot topic at the 143rd annual Congress next week, when unions will debate the defence of decent pensions in the public and private sector, and condemn the government's stealth cut by switching the uprating of pensions from RPI inflation to CPI - a move that could slash the value of pensions by 15 per cent over the next two decades.

TUC General Secretary Brendan Barber said: 'This survey highlights the real pensions scandal in Britain today.

'Not content with trousering huge pay and bonuses, often without any link to their performance, top directors are also rewarding themselves with seven digit pension pots. Worse still, some of these companies have cut back or even closed pension schemes for their staff.

'Public sector workers are rightly furious about being told that their pensions of just a few thousand pounds are 'gold-plated' and unaffordable by the same business leaders who stay silent on the multi-million pound pensions that many enjoy themselves.

'It's hardly a surprise that these lavish rewards are signed off when directors sit on each other's company remuneration committees. This culture of mutual backslapping must be tackled by giving ordinary staff members a voice on remuneration committees so that company schemes work in everyone's interests, and not just those at the top.

'The financial crash has put the issue of pay and bonuses firmly in the spotlight, but fat cat pensions are still shrouded in secrecy. The government must force companies to disclose directors' pension arrangements so that they can be scrutinised by both shareholders and staff.'

Shareholders as owners, two versions

Version 1, traditional. Shareholders have, and should retain, ownership rights because they provide capital and run this risk of losing it. Management should act in the interests of shareholders, because they are the owners, and should be incentivised to do so. The interests of society, or other stakeholders, may overlap or contradict those of the owners. But, providing what the company does is within the law, this is Of no real importance. The responsibility of the management is to act in the interests of the shareholders, not 'society'.

Version 2, progressive. Shareholders have both ownership rights and responsibilities. The rights they have, both relating to control and to income, are balanced by a responsibility to ensure that the management does not undermine the company. The interests of the owners and of society are largely aligned, if over the long-term. Taking risks, or creating externailities, in the short term is no more in the interest of owners than of other stakeholders since the former are in it for the long-term and maybe 'universal owners'. This means that the owners have an interest in ensuring that companies do more than meet the bare minimum set out in law.

Which is closer to the truth? Personally I would say that in terms of the nature of share ownership, and the attitudes expressed In the Market, it still has to be 1. What's more although version 2 has become expressed a lot more in recent years, this has happened during a period in which long-term, long- only investing (which ought to fit better with such a view) has gone out of fashion.

Request for info

Does anyone out there know anything about a body called the City Company Law Committee? The name crops up in the debate about the Bullock report on industrial democracy. Apparently the Committee issued a report on employee representation before Bullock reported, and made a response to it too. The latter document (which I have been unable to get hold of) appears to have stressed a pretty traditional view - shareholders take the right so must have primary control rights - even when this was clearly out if tune with reality. But I am basing this thumbnail on very brief excerpts reported in old academic article etc.

For info it appears that the Committee was set up by the Bank in 1975. Notably the Bank also set up the Institutional Shareholders Committee (now staggering on under the new name the Institutional Investor Committee) in 1973. So I wonder whether this was part of a conscious attempt to rehabilitate the 'shareholders are owners' approach to governance? Might make sense given that we know this was a period when the intellectual spadework forth New Right was well underway.

So any info about the Committee and where it is now (could have continued under another name) much appreciated. Happy to put up a guest postvif anyone has a lot of info.

Bonus politics

It seems a bit churlish to not simply say that James Murdoch's decision not to take this year's bonus because of events a NOTW is A Good Thing, but the decision does throw up a few issues that are worth exploring.

For example, Murdoch Jnr's statement makes clear that he was awarded the bonus because he hit his targets. This, I have no doubt, is true but leads to a few further questions. It may also be the case that he was awarded, and took, past bonuses that were in part based on News International's performance whilst the company knew that hacking had been taking place but was still denying it. So he may have been rewarded for his management of a business that apparently misled the public and parliament about it's practices. My point is not that this is ethically wrong, but simply that a business can get away with low standards and stil make a lot of money (and pay big bonuses). In other words simply hitting performance targets is not necessarily in and of itself a good thing.

if Murdoch Jnr hit all his targets then this could suggest a number of other issues to look at. Maybe NOTW wasn't all that important to his performance metrics. This chimes with the line News Corp, and Murdoch Snr, have taken that they couldn't be expected to know about this kind of stuff because it's only a small bit of the empire. Maybe that's true, but then why are they paid as if they have responsibility for the whole lot? It also suggests that a board member of a big media company can shut a profitable national newspaper without it affecting how their performance is judged. That is a bit worrying if you think there are any media owners who indulge in any kind of partisan politics. Ahem...

It also seems a bit odd that the compensation committee didn't exercise a bit of judgment on this one. I mean they must have had an idea of how bad it would look when the news came out. Even the banks were a bit smarter than that. From the outside it slightly suggests a board that doesn't challenge. Finally, doesn't it also suggest that at least some part of incentive pay (if we're sticking with it) ought to be dependent on reputation management? News Corp itself has said that the hacking scandal may impair its ability to do business. Why isn't this potential risk reflected in performance metrics?

Of course to be fair we should state that it's likely that most of the performance for which the bonus was paid occurred before the hacking story broke (early July). But then I go back to the point that this is performance during a period when News International knew quite a bit about the extent of hacking, even by James Murdoch's version of events.

So really we shouldn't expect any less than him notvtaking the bonus, and arguably we should question why his bonus wasn't significantly reduced by the comp committee in the first place.