Tax free lifestyle of the Britain's super-rich (Apr 06)

                                  
by Stewart Lansley (author of Rich Britain, The Rise and Rise of the New Super-Wealthy)
01 April 2006 The Guardian

Once there was a sense of shame about gaping inequality. Now the new breed of tycoons are revelling in their wealth. Twenty years ago Britain was one of the most equal countries in the developed world. Today it is one of the most unequal. Not so long ago a soaring wealth gap would have proved politically unacceptable. But today's wealth explosion has been broadly welcomed across the political spectrum. Tony Blair has applauded the rise of the super-rich.  

The parties and the yachts are ever more lavish. Premiership football clubs are being used as toys of the global super-wealthy; champagne-spraying in London clubs is increasingly common among investment bankers. The rich like nothing more than to outscore their rivals in the wealth stakes. Philip Green paid himself a dividend of £1.2bn last year, beating the previous record set a few months earlier by the steel magnate Lakshmi Mittal.

The soaring wealth gap is a largely Anglo-Saxon phenomenon. Today's consensus is that provided we improve the lot of the poorest, the gap is no longer an issue.  Few could quibble with personal enrichment if it reflected successful business creation and added value at historic levels. But it does not. There are many examples of entrepreneurs but we are not living through an economic renaissance. In fact, Britain has internationally low innovation and productivity rates.

Today's escalating personal fortunes are not closely linked to record levels of wealth creation. Rather, the many tycoons, investment bankers and business executives who, far from creating wealth, have taken advantage of our pro-rich culture to grab a larger slice of the cake. What is happening is a complex transfer of wealth from ordinary taxpayers, shareholders and customers.

The modern entrepreneur are more likely to have made their money not through building up firms and products from scratch, or adding value by introducing new processes, but through financial raiding, deal-making and speculative share-dealing, which involve less risk and arguably create less, if any, wealth.

If today’s typical chief executive of a FTSE 100 company earns 120 times the pay of the average worker; iut is not due to a transformation in Britain's business performance. Top-company heads have enjoyed pay increases that have greatly outstripped a range of measures of business performance. Most chief executives have negotiated contracts that guarantee them, even when pushed out, generous payoffs known as "golden parachutes".  Such payouts have made ineptitude by senior executives the shortest route to millionaire status. In America they are known as "golden condoms" because they "protect the executive and screw the shareholder".

The City in effect operates as a giant, informal cartel, charging excessive fees for activity that, for the most part, involves the transfer (or sometimes destruction) of wealth, rather than its creation. Increasingly, the emphasis is on short-term, "fast-buck" deals. Mergers and acquisitions are often driven by the prospect of fat bonuses and fees for directors and their City advisers rather than the long-term interests of the companies.

Financial speculation, the source of many modern fortunes, is rarely associated with creating value. Modern entrepreneurship and tax avoidance largely go hand in hand. Most top tycoons have exploited tax loopholes to boost their personal fortunes - at the expense of the broad body of taxpayers. Philip Green has saved hundreds of millions in personal tax in the past three years because ownership of his companies - Bhs and Arcadia - is vested in the hands of his wife, Tina, who is a resident of Monaco. (5,000 Britons, mostly businessmen, live in Monaco, a British tax haven.) Sir Richard Branson, Lakshmi Mittal and Hans Rausing all use offshore tax havens, quite legally, to reduce their tax liabilities.

There has been no "trickle-down". Rather the richest 1% have been taking an increasingly disproportionate share of the nation's wealth: 23% today compared with 17% at the end of the 1980s. In contrast, the share going to the bottom half of the population has fallen from 10% to 6%. This is more "trickle-up" than "trickle-down".