Issue 169 of SOCIALIST REVIEW Published November 1993 Copyright © Socialist Review

Tip of a golden iceberg

Top bosses have given themselves huge pay rises throughout the recession. But this is only the tip of a huge increase in their wealth. Lee Humber investigates the scams of the super rich in Britain today, while Hazel Croft looks at the real facts about the poor

A riot of the rich
A riot of the rich

In 1993 a total of 78 directors of British companies lined their pockets with over £500,000 each in wages alone. Thirty two of these bagged a million pounds or more. Four of these lucky individuals shared a cool £14 million between them, or around £270,000 per week-more than most of us could expect to get in ten or even 20 years at work.

The number of top executives on £500,000 plus soared by over a third between 1992 and 1993. The figure for those on over £1 million was up by 40 percent. The recession clearly doesn't affect everybody in the same way. These latest wage hikes for the super-rich follow a trend, set in motion during the latter part of the last Labour government of 1974-9 and consolidated by the Tories, which has seen top bosses' wages go from being eight times greater than those of the average worker to being well over 16 times as much today.

But these ever widening differentials are only the tip of a golden iceberg the rich have discovered over the past decade. 'There is a delusion that pay is all about basic salary', said a recent survey of top executives' finances. In fact, as the survey by salaries and benefits experts Bacon and Woodrow showed, with various bonuses top bosses are likely to double their incomes again.

The perks of company chief executives include such things as life assurance, worth on average around £4,000 per year, company car allowances worth £14,000, private fuel allowances worth £1,500, medical insurance worth £1,000, permanent health insurance of £2,300, extra holidays worth £4,500, subsidised loans worth £2,500, other insurance of over £2,500, as well as pension contributions worth on average £36,000 but often growing to as much as 90 percent of annual salary.

This is before the rich start trading in shares and taking advantage of the various bonus schemes and share options now routinely built into top executives' contracts. It is through fully exploiting these privileges that top earners like Conrad Black of the Telegraph group was able to net £19.2 million last year. David Sainsbury, joint owner of the supermarket group, raked in £14.5 million in cash but was part paid in shares in his company, taking his real income for last year to over £31 million--this while his check out workers earn around £150 a week and his customers pay inflated prices for food.

It is noticeable that directors in the retail and distribution industry and in the food and drink industry are on average the highest earners. Both industries are marked by low and weak levels of union organisation.

The past decade has seen a concerted effort by the ruling class to help the rich get richer not just at the expense of the very poor--although they inevitably continue to suffer most savagely from the ruling class offensive--but also at the expense of average wage earners. As the table below shows, more and more of society's wealth is being concentrated in fewer hands with now nearly three quarters of it held by a quarter of the population. The Labour Party's talk of a 'two thirds-one third society', where the top two thirds of society has a common interest in maintaining the status quo, is baseless nonsense. We are in fact much closer to a one quarter-three quarters society, where the vast majority of society has a material interest in stopping the flow of wealth to the privileged few.

That top minority has constructed various scams to sink its teeth further into the wealth workers have created over the past decade. Particularly profitable have been share option schemes. Under these schemes directors get the option to buy their company's shares at less than the stock market price and can then sell them after a number of years. If in that period the price of the stock falls then the directors simply let the option lapse. If however the price rises top executives can make massive killings. Greg Hutchings of Tompkins, the industrial conglomerate, made such a killing in 1992. In the space of a few days in May he made nearly £1.5 million by taking up three share options without even leaving his office.

More scandalous than this are the vast bundles of public money diverted into bosses' pockets after the various privatisations of former state owned industries like the electricity industry. This was partly achieved through share option schemes. Chairmen of the 12 privatised electricity companies were awarded perks worth £274,000 each after threefold pay rises. Record profits, up 43 percent in 1991, on the back of price rises averaging 13 percent, meant that the 12 bosses netted an average of £168,000 each in share option pay offs. After privatisation South Western Electricity refused to connect isolated houses in a Cornish village because the costs were too high. But, as villagers pointed out, the costs of connection were less than half of the £270,000 South Western boss William Nicol earned through his share bonus scheme.

Another feature of the shift in wealth ownership has been the massive changes in taxation. In Britain today the top 10 percent of society pay only 32 percent of their income in tax, while the bottom 10 percent pay a staggering 43 percent when direct and indirect taxation are considered together. The conscious shift away from direct to indirect taxation, with the extension of and increase in VAT, has been a body blow to the majority and a windfall to the rich minority. The extension of VAT to fuel would add another £125 per year to those on less than average incomes, which now accounts for nearly two thirds of the population.

Of the £31 billion given away in tax handouts over the last decade nearly £9 billion went to the top 1 percent of the population. Only £4.8 billion went to the bottom 50 percent. Top tax rates have tumbled from 83 percent when Thatcher came to power to today's level of 40 percent. Even these rates of tax have not been low enough for many of the bosses.

Directors' Pay

The recent tax dodging scam of the BBC's John Birt was presented as an unusual case, but his method of tax avoidance is commonplace. Many private sector executives use freelance status to avoid paying the top income tax rates on their big pay cheques. In what is a perfectly legal means of avoiding tax at the highest rate they are paid through limited companies from which they then draw a salary. One of the most outlandish examples of this recently is that of the musician Peter Gabriel. He claimed a salary of just £30,000 last year but had a total income of over £16 million after share dividends and other bonuses were taken into account.

A variety of tax breaks are also available to private companies and the self employed. They can claim tax breaks if they can show that any expenses are incurred for the purpose of business. So for example a top executive's company could claim costs of working at home including domestic expenses like lighting, heating and telephone, as well as the cost of employing members of the family. The rich don't bother with such trifles as household bills. They get the rest of us to foot the bill.

Sir Lewis Robertson holds seven directorships. At least three of them pay his wages into Robertson's private company, LRL. One of them is with the hotel group Stakis whose accounts show that Robertson's £120,000 pay went to LRL. His £60,000 pay for the chairmanship of store design group Havelock Europa went to LRL, as did his £74,000 pay from building group Lilley, before it went into receivership. LRL has just two directors, Sir Lewis and Lady Robertson. Total income for the company was £364,000 and out of this Sir Lewis paid himself £105,000, less than a third of what we are actually able to establish he received, and Lady Robertson was paid up to £20,000. The company made declared pre-tax profits of £125,000, which meant it paid tax at the lowest rate of only 25 percent. Sir Lewis also owns 4,999 of the 5,000 shares in the company, with Lady Robertson owning the other one. He decided to pay himself a dividend of £24 per share which netted the Robertsons another £119,976.

'Golden Handshakes', 'Golden Parachutes' or 'Golden Goodbyes', whatever name you choose to call them, the vast sums of money paid to executives when they leave a company amount to millions of pounds being diverted from social wealth into bosses' pockets. The pay offs bosses receive when they get the push is staggering. The largest on record is that paid to N J Nicholas formerly of Times Warner who got £26 million when he was got rid of. In Britain Ronald Groom of builders Bilton got over £1 million when he was axed as chief executive, but stayed on the payroll as a non executive director. Don McCrickard of TSB got over £750,000 when he was elbowed aside after poor company performances. As a recent Labour Party report showed, there is no correlation between how companies perform and how much pay their managers get.

There are plenty of examples to illustrate this. David Walmsley, of the loss making greeting card group CCA, gave himself a 1,079 percent wage increase last year, two months before the company was taken over. John Foulkes of building products group Airedale got a 382 percent wage rise nine months before the firm went into receivership. As Labour's survey states, 'A detailed study of the relationship between executive pay and company performance (measured in terms of returns to shareholders) found that any link between the two disappeared in 1987-88.' In fact last year 78 directors got a pay rise while their company's profits fell. Alexander Langsam and Michael Morton of the hotel group Britannia awarded themselves a pay rise of 98 percent, boosting their pay to over £4 million a year each, while their company slumped to a loss of £8.5 million. Their two wages accounted for 40 percent of the firm's sales. We can only guess at what this means in terms of job losses in the group.

The pattern is repeated over and over again. The levels of investment in British firms has sunk consistently over the same period that bosses' incomes have rocketed. Both public and private investment in plant, equipment and infrastructure lags well behind other countries. Britain invests about 18 percent of national income each year compared with 21 percent in Germany, 27 percent in Japan and levels over 35 percent in the newly industrialised countries of Korea and Singapore. Manufacturing investment in Britain has fallen by a massive 25 percent since 1990. A period of real rises in the level of productivity in Britain has been used by the bosses as an excuse to sack workers, drive down wages and use the profits to line their own pockets.

But this is not simply due to the particular greed of British bosses, disgusting though that is. British capitalists, like capitalists everywhere, are forced to invest in the most profitable ventures, to win out over their rivals or be driven out of business. So recent years have been marked not just by the obscene growth of personal wealth for the bosses, but also by high levels of investment abroad. Twice as much cash flows out of Britain in search of cheaper profits elsewhere as comes into the country.

With the gap between the poorest and the richest the biggest since the 1880s, workers' leaders in the TUC and the Labour Party should be leading the resistance to the never ending round of attacks on workers which lay the path for the profits of the few. Instead, the TUC invited Howard Davis, head of the CBI to its conference in 1992, followed by Tory employment secretary David Hunt this year. The Labour Party meanwhile utters barely a whimper against the daylight robbery of the past decade. During the last election it consciously avoided launching any attack on the bosses' privileges.

In 1991 Henry Wendt of Smith Kline Beecham got £1,800,000. This was 215 times the pay of the lowest paid worker in his company. His wages could have paid for 173 teachers, 183 ambulance workers, 202 enrolled nurses or 271 auxiliary nurses. Lord Hanson got £1,380,000 last year. This is 202 times the amount one of his workers at London Brick earns.

In 1992 Peter Ellwood of TSB earned as much in a week as one of his lowest paid clerical workers would have in a year. Ed Wallis at Powergen is on £204,000 after massive pay hikes while one in four jobs in the power industry go. Sir Robert Reid, former British Rail chairman, was on £200,000, 40 times the minimum rate for a BR worker.

These disgusting people will not give up their privileges lightly. They will have to be fought and the sooner we organise, the better.

The theory of the underclass--the idea that there is a growing pool of 'unorganisable' workers is a common one on the left today. Out of work or in part time casual work, living on run down estates, Involved in the black market economy, these workers, it is argued, have no common interest with their full time counterparts.

It is a picture of a section of society which is disenfranchised from trade union politics, the people most prey to the arguments of racists, at the mercy of drug dealers and debt collectors.

The rich have got richer and the poor have got poorer as class divides have polarised in Tory Britain. According to a recent report: 'Graphs show that the mountain of people around the middle income bands in 1979 has had its top sliced off. People have been scattered from the middle of the income distribution towards the bottom and the top.'

But the growing gap between rich and poor is not a gap dividing the poorest sections of society from the rest, but between the richest and the rest. The richest 1 percent own 18 percent of Britain's wealth compared to the bottom 50 percent who own just 8 percent.

The poorest groups in society are the unemployed, single parent families, the disabled and many of the elderly who live off the state pension alone. But there are also huge numbers of those in paid work who are poor.

According to a report of the Labour Party's Commission on Social Justice: 'Unemployment remains one of the most important causes of poverty, but a growing proportion of the poor earn their poverty. Low wages in Britain today mean a security guard working a 12-hour shift for £1.20 per hour--well below the levels prescribed by the Wages Councils which the government is now abolishing.'

Government statistics show that two-thirds of the population now have an income below average. Some 36.7 million people--62 percent of the population--now live on less than the average earnings of £250 per week, compared to 59 percent in 1979.

Only 500,000 earn more than £1,000 per week. One third of a million families are currently in mortgage arrears. Nearly two and a half million people earn incomes low enough to qualify them for means tested benefits like Family Credit. Over one half of the population are unable to save more than £10 a week and/or insure the contents of their home.

These figures cut through the 'underclass' argument. The number of people working full time has fallen dramatically over the last 14 years. For example the number of people living in families with someone working full time fell from 35.2 million in 1979 to 29.7 million in 1990-91. The numbers in unemployed families rose from 1.4 million to three million in the same period, whilst those families where the wage earners are self-employed rose from 3.3 to 5.9 million.

But those out of work do not form a separate class or underclass, but are workers who are unemployed, hit by the recession. They do not form a distinct group with different interests to the rest of the working class.

Part time workers account for some 28 percent of the workers, four fifths of them are women. But these workers can be organised as part of the working class movement. Part timers are less likely to be in unions than full timers. But the level of union organisation depends on a whole number of factors like the size of the workplace or whether or not they work alongside full timers.

So the public sector union Unison, for example, has 42.9 percent of members who work part time, the GMB has 14 percent part timers and USDAW 25.3 percent. Union density--the proportion of workers in trade unions--while still much lower than for full timers, increased during 1992 from 21 to 22 percent.

The growth of the service sector has meant the increase in a whole number of jobs considered outside the traditional working class--such as part time work in the public sector--and yet it Is in these areas that union membership, particularly among women workers, has grown.

The key deciding factor is the level of struggle among those workers which can pull previously unorganised sections of workers into unions. Moreover when key sections of the working class fight back it gives confidence to the class as a whole--even the poorest sections.
Hazel Croft

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