What’s Eating British Capitalism?

THE CITY GRUMP

“Current existing systems massively reward high status well connected people”

As usual Dominic Cummings hit the nail on the head when answering a question on checks and balances in front of the Science and Technology Committee last week (I sometimes fantasise over what could have been achieved if the Blessed Margaret had worked with Cummings instead of our current dissembling PM). I expect he had in mind the latest egregious example, being a certain Greensill Director, David Cameron, who appears to have bombarded the Treasury with requests, including texts to Sunak’s personal phone number, that this company should have access to the government-backed coronavirus loan schemes. This, probably typical piece of entirely legal lobbying, has only come to light with the spectacular collapse of said Greensill, which threatens to take a large chunk of Britain’s steel- making capacity with it.

Last week I attended a Taxpayers’ Alliance webinar given by the Treasury Minister, the Right Honourable Stephen Barclay MP. I had submitted the following question that was indeed put to him:

“Dame Sharon White, in a report to the then Permanent Secretary, described staff turnover at the Treasury as being akin to that of a call centre. Given that it is still running around 25% per annum, can you really rely on the Treasury for sufficient expertise when it comes to compiling the Budget?”

His answer was surprisingly revealing. He said that the current average age of Treasury civil servants is 29 and actually he views the high staff turnover as compliment, as clearly other employers value his peoples’ expertise. By the way, this was the spurious argument that the FSA/FCA regulator used to put up as well thus conveniently failing to mention that such staff drainage invariably left you with the dross.

But of course what’s really going on with Cameron, Treasury civil servants and a vast array of senior ex Whitehall staff, government ministers, etc  is many businesses (and it is usually big business as they can afford to pay the requisite salaries) are super  keen to employ such in order to gain direct and permanent access to the corridors of power. This rewarding of high status well connected people gives British capitalism a bad name as inevitably the public will conclude that cronyism is rife at the top.  The cancer can be terminated. How? By making it illegal for any politician or civil servant for 5 years after he/she has stepped down from office, either to have direct contact or give advice to those who do contact the civil service or Members of Parliament. Mrs Thatcher would have understood. What chance Bojo?

Meanwhile some of those currently occupying senior government positions look to be in danger, subconsciously or otherwise, of further tarnishing British capitalism. I am thinking in particular of the Chancellor’s supposed enthusiasm for attracting more companies to list on our stock market. Accordingly the Treasury commissioned Lord Hill to come up with recommendations. You may remember it was Hill, in a fit of pique, who resigned his post of EU Commissioner for Financial Services, after the Leave vote and it was Hill who was responsible for the genesis of the truly awful Mifid 2 (see here), which the CEO of the Intercontinental Exchange (owner of 23 regulated exchanges) called “the worst piece of legislation I have ever seen in my career”. Never mind, he is a high status and well-connected person.

Central to Lord Hill’s recommendations is the proposal that founders of businesses will be able to maintain voting control when they float their business on our main stock market. This apes the US system, which allows the likes of Facebook’s and Amazon’s founders to continue to rule the shareholding roost when going public. Superficially politically attractive maybe and, given Hill’s background of being part of the fundamentally undemocratic EU Commission, not a surprising recommendation. But a central tenet of capitalism is the concept of ownership through equity. Through holding equity in a business I have the right to have a vote, a say, in the future of that business. Take the vote away and I am disenfranchised. If Sunak & co can’t understand that, then think Shamima Begum. In other words what’s the point in participating in this area of British Capitalism if we are to be muzzled?

In our increasingly State subsidised and woke society British capitalism is struggling for air. By doing away with institutionalised cronyism and rethinking what equity is all about we can give it some of  the oxygen that it needs to revive itself with.

The City Grump has spent some 40 years in the City of London. He started as a stockbroker’s analyst but after some years he decided he was too grumpy to continue with the sell side of things so he moved to the buy side and became a fund manager for the next 20 years, selling his own business in the 1990s. Post the millennium, he found himself in turn chairing a stockbroker, a financial PR company, and an Exchange. He still keeps his hand in, chairing a brace of VCTs and investing personally in startups. The City Grump’s publications are available here.

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