A Labour government would install workers and consumers on the boards of all UK listed companies as part of what the shadow chancellor called an attempt to “rewrite the rules of our economy”.
John McDonnell set out plans on Tuesday to shake up corporate governance, reform the audit market and rewrite company law to tackle what he called the current overriding “predatory business model”.
Mr McDonnell said companies would be allowed to have either a single board or a new German-style two-tier structure with a supervisory board overseeing the executives. In either set-up, companies would be expected to have workers, consumers and shareholders represented.
Edwin Morgan, director of policy at the Institute of Directors, a business lobby group, said the new board structures would be “different, not better”. “Increasing firms’ flexibility to take this approach is a reasonable step, but that doesn’t mean you can import a different business culture wholesale, or that supervisory boards prevent corporate failures.”
Meanwhile, Mr McDonnell confirmed that Labour was proceeding with its controversial plan to seize 10 per cent of the shares of all companies with more than 250 staff in the UK — albeit over 10 years — and hand them to staff through “inclusive ownership funds”.
The funds would receive the dividends for those shares but distribute to employees only up to a cap of £500 per worker. Any surplus would be passed to the government as an effective tax.
However, the plan has been refined so that it would no longer apply to the international profits of UK-based companies in order to prevent a “transfer of wealth from the global south to the UK”. The calculation would be based on profits generated in the UK, as illustrated by companies’ domestic corporation tax payments.
Research from Common Wealth, a leftwing think-tank, suggests that this would reduce the annual payment to the funds to about £5.8bn rather than £10.7bn under the initial proposal.
Attacking corporate excess, the shadow chancellor outlined policies designed to tackle greed and short-termism in the business world.
Mr McDonnell said a Labour government would review whether legislation could be used to restrict votes in takeovers to those who have held their shares for a long period, for example two years.
There would be an overarching “business commission” to oversee a shake-up of Britain’s regulatory system; the Big Four accountancy firms would be forced to separate their audit and non-audit businesses; and a new statutory auditor would regulate financial services companies.
Labour is set to unveil its full election manifesto on Thursday. Mr McDonnell denied reports there would be a new “windfall tax” on oil companies, but would not comment on whether there could be another form of new levy on the oil industry.
Mr McDonnell said Labour would rewrite the companies act to make sure businesses were responsible to staff and customers as well as shareholders.
Big companies which fail to take adequate steps to tackle climate change will be delisted from the London Stock Exchange, Mr McDonnell said — confirming a policy he floated in May.
A Labour government would impose a 20:1 pay ratio between highest and lowest paid workers in the public sector and private companies bidding for state contracts.
All executive pay packages in large companies would be subject to an annual binding vote by stakeholders including staff and consumers as well as shareholders.
“We aim to take on the excesses of the shareholder model and lay some of the foundations of a stakeholder economy,” Mr McDonnell said. “Today’s business model of shareholder domination is increasingly proving to be incompatible with not just the fair and respectful treatment of workers but also with the responsibilities associated with any organisation operating within a democracy.”
But Claire Walker, co-executive director at the British Chambers of Commerce, said it would be “misguided” to impose a rigid, one-size-fits-all approach to corporate governance.
“It’s one thing to support employee ownership, stronger corporate governance and a transition to a greener economy,” she said. “But extensive government interference in ownership and governance could deter investors and damage confidence.”
Labour’s plans to rein in executive pay would be combined with significantly higher taxes for top earners. The Institute for Fiscal Studies estimates that 1.6m people — the top 5 per cent of those who pay income tax — would face bigger tax bills, under the party’s plans for a 45 per cent income tax rate on incomes over £80,000 and a 50 per cent rate on incomes over £125,000.
Someone with a taxable income of £100,000 would lose £1,000 a year, while someone with an income of £150,000 would lose £5,375, the think-tank said in analysis published on Wednesday. More people would be affected over time, since the threshold would be frozen in cash terms.
The new rates could raise an additional £3bn a year, on reasonable assumptions of how people would change their behaviour as a result of the increase, the IFS said — but these behavioural effects are highly unpredictable, so the actual figure could vary in either direction.
