The interests of corporations are writ large into the political system

Prem Sikka is an Emeritus Professor of Accounting at the University of Essex and the University of Sheffield, a Labour member of the House of Lords, and Contributing Editor at Left Foot Forward.

Who governs, is a major issue of our times. The mechanics are that people vote and elect governments, but reality is that corporations and wealthy elites shape public policies. The people’s vote is used to legitimise the state-corporation nexus.

It is hard to recall any citizen directly asking for low wages and pensions, poor housing and food, cuts in education, NHS queues, lack of social housing and social care, privatisation of healthcare, dumping of sewage in rivers, closure of community centres, unchecked corporate profiteering, second jobs for members of parliament or funding of political parties by corporations and wealthy elites. These things happen because governments are detached from the people and are subservient to corporations.

The interests of corporations are writ large into the political system. For ideological reasons the neoliberal state is prevented from owning means of production but it must have revenues for its operations and meet some of the demands from the people. Otherwise, its survival is jeopardised. Such revenues are mainly raised from taxes levied on incomes, profits and savings, which in turn are dependent upon the economic activity of corporations. Thus, the neoliberal state is forced to have regard for the long-term welfare of capital. However, at the same time it needs to create an aura that it is even-handed and pluralist. It needs a degree of autonomy to make concessions (i.e. they can be withdrawn) to the working class and provide a stable exploitative environment for capital. The aura of legitimacy is increasingly punctured as governments are enthralled by corporations and neglect people.

Labour’s 2024 general election victory is built upon corporate patronage. As the Tory government became unpopular, corporate purses opened up for Labour and it was getting more in political donations than all other parties combined. It received £19.5m from just 11 donors, including industrialists and hedge funds. Labour responded by having private meetings, lunches and dinners with corporate elites and lobbyists to reassure them that it would not disrupt their wealth and power accumulation. Lobbyists hired Labour MPs and staffers. Finance industry operators such as BlackRock, Macquarie, HSBC, Bloomberg, Lloyds, Brookfield Asset Management and Blackstone had easy access to Labour leadership. The Chancellor had private dinners with private equity bosses. Big accounting firms that routinely deplete the public purse by crafting tax abuses provided free staff. One insider said: “in 30 years of campaigning, I’ve never seen financial lobbying having so much influence on government policy”.

Chancellor Rachel Reeves boasted that Labour policies were shaped by issues raised at a “smoked salmon and scrambled eggs breakfast” and told business chiefs that “their fingerprints” are all over the party’s manifesto. Ministers didn’t have private breakfasts or dinners with hungry children, cold pensioners or people struggling to make ends meet. Some 12m people, including 4.3m children, live in poverty and their fingerprints could hardly be seen on the manifesto.

Labour promised not to hike taxes on wealthy elites or corporations, but the public purse would remain open to them. There would be no reduction in billions of pounds of corporate subsidies. In case, the government deviates corporations are ever ready to discipline the government. For example, Labour’s 2024 manifesto said that it “will close the loopholes in the windfall tax on oil and gas companies”. Oil and gas companies want the government to back down and have threated to cause economic instability by withholding investment.

Almost the first act of the newly elected Labour government has been to affirm continuation of the Tory two-child benefit cap, the biggest cause of child poverty. In an earlier incarnation Deputy Prime Minister Angela Rayner described the Tory policy as “obscene and inhumane”, but it is now the official Labour policy. It affects some 1.6m children and deprives their families of £3,455 a year. Just £2.5bn could lift 300,000 children out of poverty and improve the lives of another 700,000. But government didn’t listen. Seven Labour MPs, lifelong anti-poverty campaigners, voted against the government and had their whip withdrawn.

The median state pension is around £9,000-£9,500 a year, less than 50% of the national minimum wage. It is the only or the main source of income for majority of retirees. Out of about 12m retirees 2.2m live in poverty.  2.5m skip meals and 1.3 million are at risk of undernourishment. Last year there were nearly 5,000 excess pensioner deaths from cold. Pensioners rely upon Winter Fuel Payment (WFP) of up to £300 year to meet high energy bills. Without any manifesto commitment or consultation, the government has decided to end universal winter fuel payment for 10m pensioners. The law is in the shape of a Statutory Instrument and will not be subject to a vote in parliament. The WFP will be means-tested and given only to single pensioners with total weekly income of less than £218.15, and £332.95 a week for couples. Household energy prices are set to rise by an average of 10% or £150 in October i.e. some pensioners could be £450 a year worse off.

A cloud of austerity, public spending, welfare cuts and higher taxes hangs over the working class, but the approach to corporations and wealthy elites is different. Labour manifesto said: “Private equity is the only industry where performance-related pay is treated as capital gains. Labour will close this loophole”. Before the election, the position was that “Labour would not bow to intensive lobbying from the private equity industry”. After the election, private equity threatened to withhold investment and “leave the UK”. Insiders say “there are encouraging signs that Labour has moderated its position … Reeves herself has shifted her position … she’s now signaled that the new rules will distinguish between returns on individuals’ money put at risk and rewards with no personal risk”.

Successive governments have long used privatisations, outsourcing and private finance initiative (PFI) to guarantee corporate profits. The Labour government has now resurrected PFI, a programme which originally ran from 1992 to 1998. Under this, the government persuaded private sector to invest £60bn in schools, prisons, hospitals, roads, street lighting and military equipment with agreement to receive repayments of over £306bn. The £9bn Lower Thames Crossing is likely to be the first PFI project. The state will guarantee corporate profits.

Deregulation of financial services was a major reason for the 2007-08 banking crash. After the crash, capital adequacy ratios were raised and regulator duty to promote growth of the industry was abolished. All this has been reversed. The Financial Services and Markets Act 2023 introduced by the Tory government with support from Labour, once again requires regulators to facilitate international competitiveness of the UK economy, and its medium to long-term growth. Chancellor Rachel Reeves has promised a “financial services review to go through the rulebook and tear up rules that are unnecessary or duplicative”. This would result in dilution of capital adequacy requirements for financial enterprises and disclosure requirements for listings on the London Stock Exchange. The government imagines that lower capital requirements will release some pot of gold for investment. This view is mistaken as bank and insurance company capital is already invested in assets and cash cannot be released without liquidation of those assets. Which assets would they be and what will be the consequences? Lower capital requirements would reduce resilience of banks and insurance companies, paving the way for the next crash. In any case, there is nothing to prevent banks and insurance companies from using the surplus to finance dividends and share buybacks. Nevertheless, the policies reassure corporations that the government is obedient.

Increasingly, neoliberal democracy is seen as a sham. No matter how people vote, corporations always win. The state no longer pretends to be independent of corporations. There are no reductions in corporate welfare and subsidies, but governments pick on the poor, children, old and sick. Despite a history of failures PFI and deregulation of the financial sector has returned. Promised tax hikes on private equity and energy sector are diluted. Corporations are created by the state and these unruly children are now willing and able to devour the state, with the full acquiescence of politicians seeking personal power. Inevitably, more people will be disenchanted with the political system and become easy recruits for far-right movements.

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