Tag: transparency

Charities not allowed to criticise authoritarian government ministers

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Charities and groups contracted to deliver the government’s new Work and Health Programme have been told they must not be critical of the work and pensions secretary, Esther McVey.

A clause in the contract for those delivering the programme stipulates that signed-up charities must “pay the utmost regard to the standing and reputation” of McVey and the Department for Work and Pensions (DWP). However, such contracts that prevent charities from speaking out do not align with government claims of  “transparency”. 

Turning Point, the RNIB, the Royal Association for Deaf People, and the Shaw Trust are among charities that have agreed to act as providers of services under the programme – which focuses on supporting disabled people and other disadvantaged groups into work in England and Wales. It does not operate in Scotland.

There are currently at least 22 organisations – covering contracts worth £1.8 billion – that have been required to sign the clauses as part of their involvement with Department for Work and Pensions programmes.

The existence of an extraordinary clause was revealed through a freedom of information (FoI) request by campaigning website the Disability News Service (DNS)You can read the report on the disclosure in full here.

DNS says the clause states that the contractor “shall pay the utmost regard to the standing and reputation” of DWP and ensure it does nothing to bring it “into disrepute, damages the reputation of the Contracting Body or harms the confidence of the public in the Contracting Body”.

The contract defines the “Contracting Body” as the work and pensions secretary – Esther McVey, who was criticised and heckled last week in the Scottish Parliament as she attempted to make a defence for Universal Credit and the hated rape clause.

All of the disability charities contacted by DNS have insisted that the clause – which DWP has been using since 2015 – will have no impact on their willingness to criticise McVey or the Department.

Shaw Trust said the “publicity, media and official enquiries” clause had been present “in previous DWP contracts” and “does not and has not impinged on our independence as a charity”.

A DWP spokeswoman said: “The department did not introduce this clause specifically for the Work and Health Programme contract.

“It has been used in DWP employment category contracts since 2015.

The contract is the framework which governs the relationship with DWP and its contractors so that both parties understand how to interact with each other.

“The clause is intended to protect the best interests of both the department and the stakeholders we work with, and it does not stop individuals working for any of our contractors from acting as whistle-blowers under the provisions of the Public Interest “Disclosure Act 1998, nor does it prevent contractors from raising any concerns directly with the department.”

So how do charities raise concerns about the impact of draconian Conservative policies, without being “critical of the work and pensions secretary, Esther McVey,” or get around the problem of “paying the utmost regard to the standing and reputation” of the DWP, exactly? 

The UK government has “systematically and gravely” violated the human rights of disabled persons, a fact that was verified by the United Nations (UN) investigation, the findings of which were published in 2016. The UN report documented multiple violations of disabled people’s rights, including the way that they are politically portrayed as being lazy and a “burden on taxpayers”, the harm to health caused by unfair assessments, the cuts to legal aid and curtailed access to justice, the imposition of the bedroom tax and the ending of the Independent Living Fund, in addition to the cuts made to the welfare safety net.

The government have dismissed these findings in their entirety. Yet a truly democratic, accountable and transparent government would have monitored and assessed the impact of their punitive policies, and launched an inquiry to explore the correlation between their policies and practices and the distress, harm, premature deaths and suicides that have been well documented and evidenced over the past few years. 

This authoritarian gagging clause emphasises a toxic oppressive culture, and an intention of the government to silence its critics. However, it is unenforceable insofar as it purports to preclude a worker or group from making a protected disclosure, under the Public Interest Disclosure Act 1998. Whistleblowing legislation has been amended since the Public Interest Disclosure Act 1998, by the Enterprise and Regulatory Reform Act 2013 and the Small Business, Enterprise and Employment Act 2015.

The 2013 Act, among other things, introduced a public interest test. In order to benefit from whistleblower protection a disclosure must “in the reasonable belief of the worker making the disclosure” be “made in the public interest”. 

The 2015 Act created a power for the Secretary of State to impose reporting requirements on prescribed persons (bodies to which whistleblowers may disclose information).  It is claimed that these requirements would cover matters such as the number of whistleblowing disclosures received and investigated. 

In an era of  outsourcing and public sector commissioning, most contracts issued by NHS trusts, local authorities and central government departments, or by their prime providers, now include such restrictions on providers speaking freely or releasing any information without permission.

The Panel on the Independence of the Voluntary Sector included in its 2014 report a specific request to the government that such clauses be outlawed. Nick Hurd, then the Minister for Civil Society, said in a priceless Orwellian response that it was the government’s ambition for the UK to be “the most transparent and accountable government in the world”; but he said it had a duty “to ensure all publicly released information is accurate and validated, and contracts with providers are designed to reflect this”. 

That’s a government denial clause, by the way. 

Asheem Singh, director of public policy at the charity chief executives body Acevo, said in 2014 that gagging clauses are unacceptable and charities and social enterprises should challenge them.

“There is no doubt that many confidentiality clauses in government contracts are designed to protect not the public but the department or the ministers concerned,” he says. “We need an open, transparent system where data is freely shared. We have reams of data protection legislation that is designed to protect the vulnerable. Contractual confidentiality clauses that aim to prevent ‘bringing a department into disrepute’, as one example puts it, merely protect officialdom.”

Exactly.

However, the right to whistleblow if individuals believe there has been serious wrongdoing remains. If it’s in the public interest, there is a right to disclose and be protected from any consequences, and that is the law.

You can read about the laws and protections regarding whistleblowing and gagging clauses here.

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Update 9 October 2018

The media has finally decided this issue is newsworthy.

At least 22 organisations – covering contracts worth £1.8 billion – have been required to sign the clauses as part of their involvement with programmes getting the unemployed into work, The Times  has reported.  

Officials at the Department for Work and Pensions (DWP) denied they were “gagging clauses” intended to prevent criticism of ministers or their policies, insisting they were just “standard procedure”. However a spokesman confirmed that the contracts did include references to ensure both parties “understand how to interact with each other and protect their best interests”. The signatories to contracts must undertake to “pay the utmost regard to the standing and reputation” of the Work and Pensions Secretary, the newspaper reported, adding that they must “not do anything which may attract adverse publicity” to her, damage her reputation, or harm the public’s confidence in her. 

The disclosure comes after McVey confirmed that some people would be worse off as a result of the introduction of Universal Credit, saying the Government had taken some “tough decisions”. However, this was contradicted by Downing Street

Former prime minister John Major called for a rethink of the planned roll-out of UC to more than two million claimants of existing benefits, warning the Government risked a poll tax-style backlash if the policy was seen as unfair.

The Department for Work and Pensions has announced that from April 2019 Citizens Advice (CA) and Citizens Advice Scotland (CAS) will receive a total of £51 million to help people with universal credit claims. This move in itself shows how unfit for purpose the Universal Credit (UC) process is, as people need support in simply claiming it. 

CA and CAS  have been given a role in supporting  claimants through every step of making a UC claim and ‘managing their money when it arrives.’ The main focus will be on budgeting advice and digital support. 

£12 million is being provided to CA and CAS to set up the service by April 2019, with a further £39 million being paid from April onwards.

The government funding has understandably raised concerns about the freddom that CA and CAS will have to campaign in relation to the failings of UC.

Secretary of State for Work and Pensions Esther McVey said:

“This brand new partnership with Citizens Advice will ensure everyone, and in particular the most vulnerable claimants, get the best possible support with their claim that is consistently administered throughout the country.

“Citizens Advice are an independent and trusted organisation, who will support people as we continue the successful rollout of Universal Credit.”

Gillian Guy, Chief Executive of Citizens Advice, said:

We offer independent and confidential advice to millions of people every year, and have already helped nearly 150,000 people with Universal Credit. We’ve seen first-hand what can happen when people struggle to make a claim and their payments are delayed.

“We welcome the opportunity to provide even more people with the help they need with Universal Credit, and deliver a consistent service through the Citizens Advice network across England and Wales.

“Delivering this service will give us even greater insight into the Universal Credit system. We’ll continue to share our evidence with the government to help make sure Universal Credit works for everyone.”

The problem is that’s what he thinks.

Related 

Rogue company Unum’s profiteering hand in the government’s work, health and disability green paper

 


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Government criticised for lack of diversity, lack of transparency and poor fiscal management

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The Institute For Government (IFG) published their annual Whitehall Monitor Report on Thursday, presenting an insight and analysis of the size, shape and performance of government and the civil service.

In the opening paragraph, the IFG say: “The Prime Minister Theresa May lost her parliamentary majority in a snap general election. Revelations about ministers’ inappropriate conduct resulted in three Cabinet resignations. Preparations for Brexit have been disrupted by the snap election, by turnover in personnel and by difficulties in parliamentary management. The Government faces challenges in key public services, notably hospitals, prisons and adult social care.

It was noted in the report that preparations for Brexit have been disrupted by “difficulties in parliamentary management”. The Government has introduced only five of the nine new bills it says are needed for Brexit, and a third of the Government’s major projects worth over £1bn are at risk of not being delivered on time and on budget.

This Whitehall Monitor annual report – which is the fifth – summarises:

  • The political situation following the early election constrained the Prime Minister’s political authority and created challenges for the Government’s legislative programme and management of public services, major projects and Brexit.
  • The civil service is growing, in terms of size, but should be more diverse.
  • Government is less open than it was after 2010, and is not using data as effectively as it should.

I’ve used the summary to shape my analysis.

Fiscal management

The forecasts for tax revenues have been downgraded, the Government also forgoes billions of pounds through tax expenditures that are not subject to rigorous value-for-money assessments.

Since 2010, the value of liabilities on the government’s balance sheet has grown more quickly than the value of assets, increasing net liabilities. Furthermore, “revenue is not likely to overtake spending, in the foreseeable future”. 

Despite the promises from George Osborne of a budget surplus by 2020, and his fiscal straitjacket – the imposed, rigid programme of spending cuts and austerity for the majority of citizens, and tax cuts to the wealthiest ones. 

In real terms, revenues from taxes have grown 7% since 2010/11. This is largely the result of:

  • VAT receipts increasing by 22% (partly due to the standard VAT rate increasing from 17.5% to 20% in 2011)
  • National Insurance contributions increasing by 11%
  • Some increases in income tax collected following a stabilisation following the global crash

Council tax is also included in Treasury revenue, and that will have risen, since many low paid or out of work people now pay a contribution, whereas previously, they were exempt. Despite the increases in VAT, revenue from the sale of goods and services has fallen 34% since 2010/11. 

For the 2017 Autumn Budget, the Office for Budget Responsibility (OBR) downgraded its forecasts for productivity growth. This, in turn, has resulted in the outlook for Government revenue being revised downwards.

Tax expenditures cost £135bn per year. Tax expenditures are tax discounts or exemptions that “further the policy aims of government”. The total sum of all forgone revenue from tax expenditures across income tax, National Insurance contributions, VAT, corporation tax, excise duties, capital gains tax and inheritance tax was £135bn in 2015/16. This is equal to a quarter of the total central government tax revenue in that year, and is larger than the total budgets of all but two departments (Department for Work and Pensions and Department of Health).

For capital gains tax, the cost of tax expenditures was more than four times the amount of revenue collected

This certainly provides a strong indication of the government’s policy and budget priorities, making a mockery of trite sloganised claims of “a country that works for everyone”. Some social groups clearly raise rather more hidden political costs than others, but it is only disadvantaged and marginalised groups that tend to be negatively ideologically portrayed as a “burden” on the state by Conservatives and the media. 

In the 2017 Autumn Budget, the Chancellor announced new stamp duty reliefs for first time buyers purchasing properties worth under £500,000. Due to the policy being specifically targeted at first time buyers, this policy resembles a tax expenditure, and in 2018/19 (its first full year) is expected to cost £560m.

Furthermore, the National Audit Office has reported that the Treasury does not monitor tax expenditures and assess the value for money they offer with the same rigour as it does general expenditure. The Institute for Government, along with the Chartered Institute of Taxation and the Institute for Fiscal Studies, has called for the tax reliefs that most closely resemble spending measures to be treated as spending for accountability and scrutiny purposes.

Net government liabilities are now over £2 trillion. The Whitehall Monitor report says: “The Government’s net liability has implications for future generations of taxpayers, who will bear the costs of meeting these obligations, but the long-term nature of such obligations can make discussions around the government balance sheet seem more remote than the immediate choices about how much departments should spend each year.

“Nonetheless, policy choices have important implications for the Government’s liabilities – for example, the decisions taken by the Coalition Government to increase the state pension age, and to set a triple lock that guarantees annual increases of at least 2.5% in the state pension, are likely to have contrasting effects on the size of the state pension liability.”

The report goes on to say: “But the Government has made commitments to voters on public services, productivity, social mobility and major projects. If it fails to meet their expectations, it risks further undermining confidence in government.”

The government is still not transparent about its spending plans. The report says that “Better data is needed to understand the benefits – and risks – of outsourced public services”. 

“Wider government contracting includes back-office outsourcing by departments and the purchase of goods they use in the delivery of public services (e.g. paper, energy), as well as privately run public services. In 2015/16, £192bn was spent by government on goods and services, of which £70bn was spent by local government, £65bn by the NHS and £9bn by public corporations, with central government departments and other public bodies accounting for the remaining £49bn. 

“While some contract data is published, the Institute for Government and Spend Network have previously highlighted gaps in transparency – including on contractual terms, performance and the supply chains of third-party service providers.

“The Information Commissioner has said that the public should have the same right to know about public services whether the service is provided directly by government or by an outsourced provider”. [My emphasis]

The IFG also say in their report: “In 2016, the Public Accounts Committee concluded that the outsourcing of health disability assessments at DWP had resulted in claimants ‘not receiving an acceptable level of service from contractors’, while costs per assessment had increased significantly. [My emphasis. Some 10% of the budget for the Department for Work and Pensions goes to private contractors.]

“Similarly, in 2013 MoJ [Ministry of Justice] found that it had been overbilled in relation to contracts worth £722m.”

There have been numerous high-profile failings in government outsourcing. The recent collapse of Carillion highlights many of the longstanding and existing issues, and should encourage a political focus on solving them.

The report continues: “There is no centrally collected data outlining the scope, cost and quality of contracted public services across government. Nonetheless, we know that Whitehall departments account for only a portion of outsourced service delivery, which can also happen further downstream after departments have provided funds to public bodies (for example, the purchasing of services from GPs by the NHS) or local authorities.”

The next section of the report outlines the 2016–17 parliamentary session, in which 24 government bills were passed – fewer than in any session under the 2010–15 Coalition Government. In part, this reflects the curtailed session, which ended with the dissolution of Parliament on 3 May ahead of the election in early June. The report goes on to say that 1,097 pages of legislation – 38% of all pages passed in the session – were dealt with at speed, raising questions about the adequacy of the scrutiny these bills received.

There were also concerns raised about the scope of the powers the government has sought regarding the EU Withdrawal Bill, which has proven controversial. In particular, the inclusion of so-called ‘Henry VIII’ powers, allowing the Government to amend or repeal existing primary legislation without the scrutiny normally afforded to bills. This has quite properly provoked concern among parliamentarians.

Curiously, the report says that the use of statutory instruments (SIs) – previously used only to pass non-controversial policies and amendments – has dropped. However, this flies in the face of existing evidence, which is sourced from the government’s own site. If there has been a drop since 2014, it certainly contradicts the trend set since 2010. Furthermore, the Government has been criticised for using SIs to pass controversial policies, such as welfare cuts.

It seems that IFG counted the number of SIs by parliamentary session (the parliamentary year which tends to run from Spring to Spring) rather than by calendar year.

Scrutiny of SIs is rather less intensive than scrutiny of primary legislation. They are subject to two main procedures, neither of which allows Parliament to make any amendments:

  • negative procedure, in which an SI is laid before Parliament and incorporated into law unless either House objects within 40 days
  • affirmative procedure, in which both Houses must approve a draft SI when it is laid before them.

It’s also worth reading: Conservative Government accused of ‘waging war’ on Parliament by forcing through key law changes without debate.

The lack of progress on inclusion and diversity

The IFG says there has been “little recent progress” in numbers of senior civil servants with disabilities or ethnic minority backgrounds, while the percentage of women  also decreases proportionally with ascending Whitehall pay scales. .

They report: “The civil service needs to fulfil the promise of its diversity and inclusion strategy, especially in improving the representation of ethnic minority and disabled staff at senior levels.”  

Of those appointed to the highest departmental rank of permanent secretary in 2017, “as many were men with the surname Rycroft as were women – two in each case”. The report notes also “there has never been a female cabinet secretary for the UK”.

Despite the much-trumpeted launch of the Disability Confident employment scheme, aimed at “helping to positively change attitudes, behaviours and cultures,” and “making the most of the talents that disabled people can bring to the workplace”, sadly there is no evidence that the Government intends role-modeling positive behaviours or putting into practice what it preaches.

The representation of disabled civil servants at senior level has improved only very slightly: 5.3%, up from 4.7% in 2016. Across the UK population as a whole, according to the Office for National Statistics (ONS), 21% of people are estimated to have a disability (some 18% of the working-age population). 

Lack of openness, transparency and accountability

In the UK, the idea that government should be open to public scrutiny and policies congruent with public opinion is central to our notion of democracy. Government openness and transparency also tends to be linked with citizen inclusion, democratic participation and a higher degree of collaboration between citizens and government on public policy decisions. It also ensures that corruption and the misuse of political  t power for other purposes, such as forms repression of political opponents is less likely.

Information and data deficits are more likely to lead to political corruption and a reduction in democratic accountability.

The IFG report says that in 2016–17, more ministerial correspondence was answered in time, which were thanks to more generous targets, while fewer parliamentary questions were answered on time and information was withheld in response to more Freedom of Information requests.

Parliament has other mechanisms to hold government to account, including urgent questions (which have most tellingly increased significantly in recent years) or select committee inquiries (which have also increased in number, with the election delaying government responses). The Government has established a track record of withholding details of planned legislation from the opposition. (See for example: PIP and the Tory Monologue).

According to Democracy Audit UK  an independent research organisation, established as a not-for-profit company, and based at the Public Policy Group in the LSE’s Government Department – the lack of transparency has been fuelled by the coalition period, and now, the Conservative’s’ narrow majority,  as the amount of secondary legislation is growing, and primary legislation is drafted in ways that increasingly leave its consequences obscure, to be filled in later via statutory instruments or regulation. Commons scrutiny of such “delegated legislation” is subsequently reduced, and likely to be very weak and ineffective.

Meanwhile, departments’ publication of mandated data releases, including spending over £25,000, organograms and ministerial hospitality, is patchy. Departments also proactively publish on GOV.UK, though supply and demand differs by department

The IFG says that many departments are not publishing their data as frequently as they should and this, coupled with the difficulty of measuring government performance, suggests that the government is becoming less transparent and accountable.

A rise in the numbers of Freedom of Information requests that are being refused

Since 2010, government departments have become rather less open in response to Freedom of Information (FoI) requests. In 2010, 39% of requests were fully or partially withheld; this had increased to 52% by 2017. 

Departments are able to refuse requests on a number of grounds: if the request falls under one of the 23 exemptions in the Freedom of Information Act 2000 (such as national security or personal information) or those in the Environmental Information Regulations; if it breaches the limit for the cost involved in responding (£600 for central departments and Parliament); if the request is repeated; or if the request is ‘vexatious’ (meaning it is likely ‘to cause a disproportionate or unjustifiable level of distress, disruption or irritation’). 

Of the 2,342 requests withheld in full in 2017, 50% were held to be due to FoI Act exemptions, 47% to cost, 2% to repetition and 1% to vexatiousness.

Of course exemptions may also be used as “good reasons” – excuses – to withhold inconveniently controversial information that is likely to bring valid criticism and cause scandal.

Mike Sivier‘s request for information about how many people have died after going through the Work Capability Assessment, which had resulted in a decision that they were fit for work, was originally refused. The figures were only released after the Information Commission overruled a Government decision to block the statistics being made public, through Mike’s Freedom of Information request.

After the request, the Information Commissioner’s Office (ICO), an independent authority set up to uphold public information rights, agreed that there was no reason not to publish the figures, despite the Department for Work and Pensions variously claiming the request was “vexatious”, and that it “could impose a burden in terms of time and resources, distracting the DWP from its main functions”.

However, clearly the real reason for the original refusal of this request is that the information was highly controversial and contradicted political claims regarding the completely unacceptable level of harm that has been caused to citizens by the damaging impact of the Conservative’s draconian welfare policies. 

The ICO said: “Given the passage of time and level of interest in the information, it is difficult to understand how the DWP could reasonably withhold the requested information.”

More recently, the Department for Work and Pensions (DWP) has continued to try to block John Slater’s FoI request which is likely to expose the widespread failings of two of its Personal Independent Payment (PIP) disability assessment contractors, initially claiming that it did not hold the information he had requested, before arguing that releasing the monthly reports would prejudice the “commercial interests” of Atos and Capita.

The DWP later told the Information Commissioner’s Office (ICO) that releasing the information “will give rise to items being taken out of context… [and] will be misinterpreted in ways that could lead to reputational damage to both the Department and the PIP Providers”, and would “prejudice the efficient conduct of public affairs” by DWP.

It also warned the ICO that the information could be “maliciously misinterpreted to feed the narrative that the Department imposes ‘targets’ for the outcomes of assessments”.

However, that comment alone indicates the highly controversial nature of the information being withheld, and thus also betrays the real motive. Information is being restricted to stifle legitimate criticism of Government policy and to hide from public view the empirical evidence of its consequences.

The ICO has nonetheless ordered the release of the information requested. A DWP spokeswoman said: “We have received the ICO judgement and we are currently considering our position.” 

If the DWP disagree with the decision and wish to appeal, it must lodge an appeal with the First Tier Tribunal (Information Rights) within 28 calendar days. The requester also has a right of appeal.

The ICO say: Failure to comply with a decision notice is contempt of court, punishable by a fine.

It’s also worth noting that the DWP are obliged to inform any contractors of how the Freedom of Information Act may affect them, making it clear that no guarantee of complete confidentiality of information may be made and that, as a public body, it must consider for release any information it holds if it is requested. 

The Department for Exiting the European Union (DExEU) overtakes the DWP to become the most opaque department. This is one example of a wider lack of transparency around Brexit and reflects the wider reluctance of the Government to share assessments of the anticipated impact of Brexit on different parts of the UK economy. Publication of spending and organisational data remains patchy, suggesting departments are not using the data themselves. 

The Scotland Office, Wales Office and Department for Transport tend to grant more requests in full, and in a timely manner. Among the more opaque are several departments regularly granting fewer than 30% of requests, particularly since 2015, including the Cabinet Office, Foreign and Commonwealth Office (FCO), the Treasury, HM Revenue and Customs (HMRC) and Minstry of Justice (MoJ).

None of the departments created in July 2016 – DExEU, DIT and BEIS – has ever granted even half of its total requests in full. In the three-quarters leading up to Q3 2017, DExEU was the least likely of all departments to comply with FoI requests, respectively answering 18%, 10% and 15% in full. It also refused a higher percentage because they were considered “vexatious” than any other department in 2017; 14% of requests.

The IFG report says “DExEU’s lack of transparency here, and its tardy responses to other requests for information (though not on FoI, where it is the sixth most responsive department), are consistent with its wider reluctance to release information, including the Government’s assessments of the anticipated impact of Brexit on different parts of the UK economy.”

Chart percentage of Freedom of Information requests withheld by government departments

You can read the full IFG Whitehall Monitor Report here


 

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Select Committee says governance code for large companies with social impact is crucial, following inquiry into collapse of BHS

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Philip Green

The Work and Pensions Committee have called for new duty on company directors to have regard to pension schemes and for Insolvency Service reports to be published in the public interest. 

On 28 April last year the Committee launched its joint inquiry into the collapse of British Home Stores (BHS) and the origins of its huge pension scheme deficit. BHS was a private company but the effects of its collapse spanned widely: not least to its thousands of employees and pensioners.

The three month inquiry examined corporate governance in Sir Philip Green’s companies, which are privately held and ultimately owned offshore by Lady Green. It found a near-complete absence of the constructive challenge that is the hallmark of good corporate governance. Green, a “dominant personality”, ran his companies as a personal empire with boards taking decisions with reference to a shared understanding of his wishes rather than the interests of each individual company.

An extraordinary and scandalous tale unfolded in which the greedy main players took lavish rewards at the expense of the employees and pensioners of the company. Inter-company loans and property deals, related-party transactions and the hurried disposal of BHS to a wholly unsuitable buyer all proceeded with woefully inadequate checks and balances. The poor corporate governance in Green’s companies was epitomised by the complacent performance of Lord Grabiner, a director of several of the Green empire subsidiaries.

In July last year, MPs catalogued a litany of failures culminating in an “at any cost” disposal of the company and pension deficit to a wholly unsuitable “chancer”. In their inquiry report about BHS, the Work and Pensions and Business and Innovations and Skills Committees concluded that Green chose to rush through the offloading of a beleaguered high street institution, which was losing money and encumbered with a massive pension fund deficit, to a buyer who he was clearly aware was “manifestly unsuitable”, with Green forced to finance the sale himself.

Though the ownership of Dominic Chappell and his associates was “incompetent and self-serving”, the ultimate fate of the company was sealed on the day it was sold. Advisers were paraded by both sides as an “expensive badge of legitimacy for people who would otherwise be bereft of credibility” while the Taveta group directors (owned by Green’s billionaire wife, Tina Green) failed to provide a semblance of independent oversight or challenge in a corporate group run as a personal fiefdom by a single dominant individual.

MPs heard hours of oral testimony and considered thousands of pages of written evidence in the inquiry, which began when BHS crashed into administration just 13 months after the ill-advised and under-funded sale to Chappell. The Committees said that the evidence at times resembled a “circular firing squad”, with a series of key witnesses appearing to believe they could absolve themselves of responsibility by blaming others. Green himself “adopted a scattergun approach”, liberally firing blame to all angles except his own.

The unacceptable face of capitalism

The report documents the systematic plunder of BHS at the cost of the 11,000 jobs and 20,000 people’s pensions now at risk.  Green, Chappell and the respective directors, advisers and hangers-on who all got rich or richer are all culpable, with the losers being the ordinary employees and pensioners.

The Committees said this is “the unacceptable face of capitalism” and that the story of BHS begs much wider questions about the gaps in company law and pension regulation that must be addressed. The two Committees turned to those question in subsequent inquiry hearings.

The headline figures that Green bought BHS for £200 million and sold it 14 years later for £1 cannot disguise the true picture. He did not invest in the company and then “unfortunately” failed to make it succeed. Green systematically extracted hundreds of millions of pounds from BHS, paying very little tax and fantastically enriching himself and his family, leaving the company and its pension fund weakened to the point of the inevitable collapse of both. Lady Green is still being paid tens of millions of pounds of tax free repayments on the loan that was engineered to sell BHS from one Green family business to another, and will be for some years to come.

A moral duty to act on the pension schemes

  • When Green bought BHS the pension schemes were in surplus. As these schemes declined into substantial and unsustainable deficit he and his directors repeatedly resisted requests from trustees for higher contributions. Such contributions were not charitable donations: they were the means of the employer meeting its obligations for deferred pay. Green had a responsibility to be aware of the growth of the deficit and he was aware of it. That there is a massive deficit is ultimately his responsibility.
  • The Committees say Green must act now to find a resolution for the BHS pensioners, a “moral duty” which will undoubtedly require him to make a large financial contribution. Green’s failure until now to resolve the pension fund’s problems contributed substantially to the demise of BHS, along with chronic under-investment and the systematic extraction of hundreds of millions of pounds from the increasingly ailing company.
  • The Arcadia board cited a variety of explanations for pausing Project Thor, ranging from Christmas to the Scottish independence referendum and instability in Ukraine. In fact, the primary reason was Green’s resistance to TPR’s moral hazard requests. He did not wish to respond to requests for information regarding historic dividends, management charges, sale and leaseback arrangements, inter-company loans and the use of BHS shares or assets as collateral for company purchases. At best this demonstrated a lack of willingness to act to secure the pension fund’s future.

Incredible wealth followed by retail demise

  • In his early years of ownership, Green cut costs, sold assets and paid substantial dividends offshore to the ultimate benefit of his wife.  The so-called “King of the High Street” failed to invest sufficiently in stores or reinvent the business to beat the prevailing high street competition. The Committees found “little to support the reputation for retail business acumen for which he received his knighthood” and say “we don’t doubt that Green had some affection for BHS – to an extent it created him. Now it could also bring him down” 
  • Green’s family accrued incredible wealth during the early, profitable years of BHS ownership. Over the duration of their tenure, significantly more money left the company than was invested in it. There is no evidence of improved turnover, market share, or major increase in investment that might be expected from a leading retailer. BHS was involved in a number of transactions with a complex web of companies, many registered offshore: whether BHS benefited financially from these transactions is far from clear. What is clear is that the Green family did.
  • The report documents the ways Green was able to boost BHS’s profitability in the short-term while ultimately fatally undermining its ability to survive. The early years improvement in BHS’s profitability appears to have been achieved primarily through cost-cutting measures and squeezing suppliers. Crucially, BHS’s turnover remained flat through much of Green’s tenure and declined in the latter years. Green initially cut costs but he did not grow the business.
  • One mechanism of (tax-lite) cash extraction to other Green family companies was through the sale of property: in 2001, BHS Group sold ten BHS stores for £106 million to Carmen Properties Ltd – a Jersey-registered company owned ultimately owned by Lady Green – as part of a sale-and-leaseback arrangement. BHS Ltd then paid rent to Carmen for the use of these properties. They were ultimately sold back to BHS as part of the sale to RAL for only £70m (with the proceeds of the sale going to Lady Green as the sole beneficial owner) but, over the lifetime of the sale-and-leaseback arrangement, rent of £153 million was paid by BHS to Carmen.

Egregious failures of corporate governance

  • Green’s rush to drive through the sale of BHS – “a chain that had become a financial millstone and threatened his reputation” – was the culmination of a sorry litany of failures of corporate governance and greed.  Regulatory concerns were circumvented, advisers were heavily incentivised to progress the deal. Dominic Chappell, his friends and associates were enticed by the personal rewards on offer without taking any personal risks. The Committees published for the first time with their report the Due Diligence reports produced by Olswang (and associated RAL Board minutes), which show their advice against the purchase and express concern that RAL were reliant on Green making good his unwritten assurances. (RAL= Retail Acquisitions Ltd.)
  • The complacent performance of Lord Grabiner as the non-executive Chairman of the Taveta group boards represented the apogee of weak corporate governance. It was his responsibility to provide independent challenge and oversight. Instead he was content to provide a veneer of establishment credibility to the group while happily disengaging from the key decisions he had a responsibility to scrutinise. For this deplorable performance he received a considerable salary. It is permissible in law for a director to delegate certain functions to other persons, but if a director allows himself to be dominated, or manipulated by one of their number, he may have gone beyond the boundaries of what is proper. He could be found to be in breach of duty and subject to disqualification. All directors of Taveta and RAL have serious questions to answer about their performance in those roles.
  • Green faced a considerable challenge in finding a credible buyer for a business that was consistently losing money and had a pension scheme with a large and growing deficit. It was clear that Chappell’s team were out of their depth, woefully short of the requisite experience and expertise, notably lacking the credible senior retailer Green once insisted on. They brought no new money to the deal, took no personal risk, could offer no equity and had no means of raising funds on a sustainable basis. Ultimately, Chappell and RAL failed all of Sir Philip’s nominal tests for a buyer. They were manifestly unsuitable owners of BHS. It is inconceivable that someone with Green’s experience seriously considered otherwise.

Collapse under incompetent and self-serving RAL

  • The report documents the true numbers behind the sale. The board of Taveta Investments Ltd was presented, two weeks after the event, with a rosy picture, while the reality was very different. The balance sheet included cash for immediate liabilities, property deals that took many months to materialise, funds that went to RAL never to return and equity that was a loan on punitive terms. It was patently obvious that there was not enough cash in BHS to give it a realistic chance of even medium term survival.
  • RAL’s failures include some blame for the pension scheme, which they accepted responsibility for with a “negligent and cavalier disregard for the risks and potential consequences”, negligence which “continued into their incompetent and self-serving ownership of the company”. In putting his “home team” first, Chappell and his fellow directors were personally enriched as BHS failed around them. Two directors jumped ship on the day that RAL acquired the business with personal financial rewards that it would take many BHS employees decades to  earn. The others continued to profit handsomely from their positions without fulfilling their requisite responsibilities.
  • In effect, Chappell “had his hands in the till”. His description of £2.6 million that he personally took, in addition to an outstanding £1.5 million family loan, as a “drip” in the ocean is an insult to the employees and pensioners of BHS that he let down.

Chairs’ comments

 Frank Field MP, Chair of the Work and Pensions Committee, said:

“One person, and one person alone, is really responsible for the BHS disaster. While Sir Philip Green signposted blame to every known player, the final responsibility for up to 11,000 job losses and a gigantic pension fund hole is his. His reputation as the king of retail lies in the ruins of BHS. His family took out of BHS and Arcadia a fortune beyond the dreams of avarice, and he’s still to make good his boast of ‘fixing’ the pension fund. What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?”

Iain Wright MP, Chair of the Business, Innovation and Skills Committee, said:

“BHS’s demise has created many losers, particularly the 11,000 staff facing the loss of their jobs and the 20,000 pensioners facing significant reductions to their pensions. The actions of people in this sorry and tragic saga have left a stain on the reputation of business which reputable and honourable people in enterprise and commerce will find appalling. The sale of BHS in March 2015 is crucial to its eventual collapse a year later. The sale of BHS to a consortium led by a twice-bankrupt chancer with no retail experience should never have gone ahead; and this was obvious at the time. The reason it did, however, was Sir Philip Green. He was determined to get the deal done, no matter that the buyer could not deliver what BHS needed. There was a complete failure of corporate governance, with Sir Philip bulldozing the sale through, without proper oversight or challenge from his weak and impotent board.

While BHS staff face uncertain job prospects and pensioners worry about their future entitlements, it’s clear that a large cast of directors, advisers, and hangers-on enriched themselves off the back of BHS, including Dominic Chappell and his fellow RAL directors. Chappell took no risk and put no money into the venture and yet gained huge rewards as BHS crumbled around him. His failure is bad enough but that he effectively had his hands in the till is an insult to the employees and pensioners of BHS that he let down so badly.”

In response to the Government’s consultation on corporate reform, the Work and Pensions Committee’s most recent report says that the corporate governance and reporting requirements for public listed companies should be extended to private companies that have an important social impact: large private companies and those with over 5,000 defined benefit pension scheme members.

It also says that company directors should have a new duty to pension fund trustees, as the representatives of pension scheme members, in addition to those stakeholders they are already obliged to have regard to. Allied to the more substantial recommendations on pension law and regulation in its December 2016 Report, the Committee concluded these changes would reduce the chance of another company collapsing in the manner of BHS.

The key themes that emerged during the inquiry included:

  • lamentable corporate governance in what was a large private company
  • a paucity of publicly available information about the state of the company and its pension fund
  • the absence of a voice in the running of the company for those who relied on its success for the security of their pension saving.

Committee recommendations

Holding company directors to account

  • Public listed companies are required to comply with the Financial Reporting Council Corporate Governance Code and its reporting requirements or publicly explain why they are not. This is a proportionate approach for companies of social importance. Transparency about governance arrangements, performance and risk can better equip stakeholders to hold company directors to account. Wider awareness of the state of the BHS pension schemes may have pressured Sir Philip Green into taking more reparative action, sooner.

Large companies should be subject to the Financial Reporting Council Corporate Governance Code

  • Private companies that are large, as defined by Government, or have over 5,000 defined benefit pension scheme members, should be made subject to the the Financial Reporting Council (FRC) Corporate Governance Code on a comply or explain basis. The report includes a table of the top 30 largest private companies in the UK, with many household names like John Lewis, Clarks, Matalan, Virgin Atlantic, River Island, Pret a Manger – and the Arcadia Group – that would fall under the parameters of this recommendation. Many well-governed large private companies already follow best practice on transparency.

Include pension scheme trustees in section 172 of Companies Act

  • Pension scheme trustees should be added to section 172(1) of the Companies Act 2006. The list of stakeholders company directors must have regard to – and report on the exercise of their duties to – does not include defined benefit pension scheme beneficiaries or the trustees who must act in their interests. Incomes of pensioners in retirement are reliant on the sustained success of the sponsoring company but they are at particular risk of being neglected in corporate decision making as no one makes the case for former employees. The inclusion of pension scheme trustees in section 172 might increase the chances both that directors would take into account the interests of current and future pensioners in carrying out their duties, and that those who have failed to do so will be held accountable in the courts.

Publication of Insolvency Service investigation reports

Publication of correspondence with Arcadia

The Committee publishes with the report a series of correspondence with Ian Grabiner, Arcadia Chief Executive, and the Arcadia Group pension trust, charting its efforts to get information about the group’s pension schemes into the public domain. Arcadia’s pension schemes are over £200 million in deficit, but all parties have refused to provide information regarding the 2013 valuation and recovery plan, or the levels of employer contributions.

Chair’s comment

Frank Field MP, Chair of the Committee, said:

“For a company with a big social and economic footprint like BHS it is simply not enough to be accountable to shareholders – particularly when one shareholder owns most of the stock. The sorry tale of its sale and collapse, putting 11,000 people out of work and leaving a pension fund £571million in the red, with 20,000 pensioners facing an uncertain financial future, was a result of gross failures of corporate governance. Would the story have played out the same way if its directors had to be open about the financial decisions they were making for its future? The finances and leadership of a company with so many people depending on it should be open to scrutiny.

We have already expressed our grave concerns about corporate governance in the Green empire, and we know the Arcadia pension fund is also now in substantial deficit. We have been pressing Arcadia’s directors and pension trustees for detailed information on their schemes but very little is published and neither the company nor the trustees – who unlike the BHS schemes do not have an independent Chair – will tell us. Does Sir Philip not want us to know that he was being relatively generous to the Arcadia schemes while the BHS schemes floundered and the company headed inexorably for insolvency? Was he neglecting both? It can’t be right that basic information like the schedule of employer contributions and the length of the recovery plan is not in the public domain. If it goes under then levy-payers and pensioners foot the bill.”

You can read the full consultation response on corporate governance reform from the Work and Pensions Committee here.

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You can watch Philip Green present evidence on the collapse of BHS to the Business, Innovation and Skills Committee and Work and Pensions Committee, Wednesday 15 June 2016 here:  https://goo.gl/eeUggP

Related

In 2010, UK Uncut’s spokesman, Daniel Garvin, said: “Philip Green is a tax avoider, and yet is regarded by David Cameron as an appropriate man to advise the government on austerity. His missing millions need to be reclaimed and invested into public services not into his wife’s bank account.”  See: Philip Green to be target of corporate tax avoidance protest The Guardian.


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Ed Miliband announces that Labour will put democratic leaders’ debates on a statutory footing. And Cameron is a coward.

chickenEd Miliband is quite right to call Cameron a chicken. Tory MP Rees-Mogg appeared on Channel 4 News and laid bare the reason for Cameron’s “predicament” regarding the pre-election debates – it’s all because of a “left-wing conspiracy.” Really.

Gosh, does that mean the BBC’s political editor, Nick Robinson, once chairman of the Young Conservatives, has undergone a radical Trotskyist transformation whilst we slept?

Since when was debate, open discussion of pressing issues that affect the electorate, democratic discussion of policies, political transparency and  accountability deemed a “left-wing conspiracy”? Given the priceless claim of “BBC bias”, despite Iain Duncan Smith’s ongoing intensive monitoring campaign to keep the beeb “right”, I had to chuckle very heartily at that. It gave me quite a sarcastic turn.

I’m sure that emminent communist Lord Patten of Barnes must be delighted that standards haven’t slipped since he resigned last May as the Chairman of the BBC Trust, which is the appointed governing body.

Mind you, the government appointment of Pattern’s successor, following backroom negotiations, certainly raised a few eyebrows. Renowned socialist, Rona Fairhead (appointed a Commander of the Order of the British Empire in 2012) is one of the government’s business ambassadors and a director at the Cabinet Office, advising Francis Maude. There may be a glimpse of a political hinterland, however, from the fact that her husband, Tom, a director of the private equity firm Campbell Lutyens, was a Tory councillor.

Andrew Neil, the presenter of the BBC’s flagship political programmes Daily Politics and This Week, is chairman of the Spectator magazine. His editor is Robbie Gibb, former chief of staff to Francis Maude. And after the BBC’s economics editor Stephanie Flanders left for a £400,000-a-year job at that communist hotbed, JP Morgan, she was replaced by its business editor Robert Peston.

Peston himself has said: “Any suggestion the BBC has a left-wing bias is bollocks and the broadcaster actually veers towards a right-wing, pro-establishment view for fear of criticism.”

Research does indeed indicate that the BBC’s output is heavily biased towards the establishment and right-wing sources. Cardiff University undertook an extensive study, revealing that whilst there is always a slight bias towards political incumbents, the ratio in favour of Conservative politicians appearing on BBC news is significantly far greater than it was in favour of Labour figures when Gordon Brown was prime minister. Business representatives appear much more than they do on commercial news, and appear 19 times more frequently than trade union spokespersons on the BBC Six O’Clock News.

The evidence from the research is very clear. The BBC tends to reproduce a pro-Establishment, Conservative, Eurosceptic, pro-business version of the world. Furthermore, the Queen appoints the regulatory body – the BBC trust –  advised by government ministers, and the BBC trust then appoints the Director General. This has led to a public service run by people with strongly right-wing political and business affiliation.

Tory insiders say that Cameron is “determined” to avoid participating in the televised debates on equal terms with Miliband before the election, as he believes the Labour leader is the only one who would benefit. Chief election strategist Lynton Crosby and the former party deputy chairman Lord Ashcroft both insist Cameron should not risk taking part in a head to head, even if he endures “short-term criticism” for not doing so.

Ed Milband has announced that a Labour government would take legal steps to make sure leaders’ debates become a permanent feature in general election campaigns following David Cameron’s flat, arrogant refusal to take part in the three showdowns proposed by broadcasters.

A Labour government will move to put “fair and impartial leaders’ debates” on a statutory footing in an effort to avoid them becoming subject to the kind of “political wrangling” that has characterised the programmes scheduled for next month in the run-up to polling day.

The new system would work on similar lines to the current rules for planning the number, length and timing of party political broadcasts, under which parties are consulted but not given the power to veto them.

This may be done by establishing the body which negotiates the terms of debates as a trust in statute with responsibility for determining the dates, format, volume and attendees.

A Labour government would set a deadline of 2017 for changes to be put in place, giving more than enough time to plan the debates for a 2020 election.

Meanwhile, the four broadcasters – the BBC, ITV, Sky and Channel 4 – have said they will stick to their previously-announced plans for three debates during the election campaign, and urged the Prime Minister to “reconsider” his refusal to take part in these shows, including a head-to-head showdown with Mr Miliband.

Miliband told the Observer: “In recent days the British public has been treated to the unedifying and tawdry spectacle of a prime minister seeking to duck out of the TV debates he once claimed to support with great enthusiasm. Yesterday the broadcasters made it clear they would not be cowed by his tactics but it is wrong for them and the British public to have governing parties use this kind of pressure in campaign periods. It is time to ensure, once and for all, that these debates belong to the people not the prime minister of the day.”

But Cameron hasn’t exactly led a democratically inclined, transparent and accountable government for the past five years. He knows that in agreeing to just one debate with seven parties, questions will get such a short time for responses that he can evade any meaningful, in-depth scrutiny regarding his appalling policy record, entailing the myriad U-turns, inflicted cruelties and crass, prolific dishonesties of his leadership. And the one debate that Cameron has agreed will take place before his party manifesto is published, which again dodges accountability to the electorate: a profoundly (and consistently) undemocratic approach.

As Vernon Bogdanor, professor of government at King’s College, London says: “Debates should not be subject to the tactical calculations of party leaders. There is certainly the case for a statute requiring debates between leaders of all parties with over 5% of the vote; and a separate debate between the PM and leader of the opposition. That statute is best administered by the Electoral Commission rather than the broadcasters who can too easily be accused of bias.”

Cameron clearly dare not debate head-to-head with Ed Miliband – which is remarkable, given that the Tories’ entire campaign is predicated on portraying the Labour leader as “weak and incompetent.” So why is Cameron too afraid to confront him in public?

Last year I wrote that people often mistake Miliband’s decency and refusal to engage in negative smear campaigning as “weak”: it isn’t. This year, Ed Miliband has acknowledged that perception – fueled by a desperate Tory party and right-wing media barons that have endeavoured to portray Miliband as “unelectable” – asked us not to make that mistake, in an interview with Simon Hattenstone  – Ed Miliband: don’t mistake my decency for weaknessIt’s worth reading the entire interview, what shines through is Miliband’s genuine warmth, honesty, decency, strength and conviction in his principles.

Miliband is no “career politician” and Cameron knows that formal debate with him would serve to juxtapose unfavourably – exposing the vast differences between his own unprincipled archetypal anti-heroic Flashman character – a manipulative scoundrel and liar, a cunning cheat, a corrupt and coarse coward  – and a steadfast, decent, true partisan, conviction politician with principles and integrity. Miliband is precisely the prime minister that this country so desperately needs. Cameron knows it. He doesn’t want the public to know it.

Cam weaknessThe right-wing media campaign, aimed at attempting to undermine Miliband’s credibility as a leader, arose precisely because Miliband is the biggest threat to the UK power base and status quo that we’ve seen for many decades. He’s challenging the neo-liberal consensus of the past 30 years – now that is a plain indication of strong leader, and someone with personal strength and courage. Qualities that Cameron so conspicuously lacks.

I wonder if the Tories consider their imminent loss on 7 May due to their own callous policies, prolific lying and unmitigated economic disaster these past five years a left-wing conspiracy, too?

Laugh out loud.

 

Further reading:

Cameron’s chief spinner on leaders’ debates: No no no! The PM should hide and throw things at Miliband

The establishment are ‘frit’ because Ed Miliband is the biggest threat to the status quo we’ve seen for decades

The moment Ed Miliband said he’ll bring socialism back to Downing Street

Miliband is an excellent leader, and here’s why

The Tories attack Miliband because they’ve got no decent policies

The BBC expose a chasm between what the Coalition plan to do and what they want to disclose

Once you hear the jackboots, it’s too late

tory liesThanks to Robert Livingstone for the excellent memes.