Financial Loopholes

STOP PRESS 14/8/14: Both HSBC and Royal Bank of Scotland have announced they will be employing a loophole to circumvent the cap on bankers’ bonuses – since this blog was written it has been confirmed that HSBC is giving £7.1m in ‘fixed payments’ to 15 of its top staff to sidestep the EU-imposed cap on bonuses. Similarly RBS will be paying £3.5m to 10 of its top bankers. Further proof that the Free Market Capitalist view of the ‘trickle down’ of wealth is a nonsense, as those at the top will shamelessly employ every trick they can to accumulate society’s wealth for themselves.

The advocates of our current version of Capitalism – Free Market Capitalism or ‘neo-Liberalism’ – freely admit that those fortunate enough to reside in the upper echelons of society will accumulate vast amounts of wealth, but claim that this wealth will naturally ‘filter down’ for the benefit of everyone. This is a complete fallacy, with the reality being  that those at the top will use every trick in the book – legal and illegal – to hang on to their wealth and avoid sharing it with anyone else. This is perfectly illustrated by two events this week, where extremely wealthy people resorted to desperate and disgraceful measures to increase their already vast fortunes.
Bernie Ecclestone: not content with his £2.8bn fortune, does his best to avoid paying tax as well. Picture © Ryan Bayona

First, Bernie Ecclestone, the Head of Formula 1 racing, who is reputedly worth some £2.8bn, has been involved in a long-running dispute with the Inland Revenue over unpaid tax. Mr Ecclestone apparently set up a series of family trusts, which he then put in his wife’s name, before transferring them to the Tax Haven of Liechtenstein. This got him out of a tax bill estimated to be about £1.2bn*. However, after a 9-year investigation the Inland Revenue eventually agreed to drop proceedings, and Bernie Ecclestone has instead coughed up a mere £10m in underpayment: as much as he makes every  6 weeks in interest on the money! It may well be that by clever manipulation of legal loopholes he has stayed within the  law, but it nevertheless shows the extreme lengths the very rich will go to, to avoid sharing their wealth with the rest of society, while at the same time ordinary people have to struggle on under the cosh of Austerity.  What on earth does he need £2.8bn for anyway, other than to show it off as an obscene status symbol? If he’d paid the £1.2bn tax and was now worth ‘only’ £1.6bn, in what way would that have adversely affected his lifestyle? One wonders whether he considers how the tax he’s avoided could have gone to improving the lives of so many ordinary people, or is his selfishness so complete he really doesn’t give a damn?

The second story concerns Taxpayer-owned Royal Bank of Scotland, where it was announced this week that  the government will not allow the bank to pay bonuses of 200% of annual salary to their staff, but must instead stick to the 100% limit agreed by the EU. So chief exec Ross McEwan can ‘only’ be given a maximum bonus of £1m on top of his £1m annual salary. So what have RBS done? Announced that Ross McEwan will now also be paid a £1m annual ‘allowance’ on top of his salary. In other words he will still get the extra £2m/year that a 200% bonus would have delivered*. These people just take the p*ss – not only have they clearly learnt absolutely nothing from the financial crisis, but they continue to blatantly milk the system for all it’s worth right under our very noses, by side-stepping the rules without even trying to hide what they’re doing.

This is Free Market Capitalism at its very worst – allowing those with the wealth to make the rules, which enables them to take as much money for themselves as they like, while the rest of us all have to pay for their excess. What we badly need is a system of governance where those in power are truly independent of those with the cash, and the rules and laws are made for the benefit of all society, not just the wealthy elite at the very top. Until we get that, the vast injustices that we witness on an almost daily basis will continue unchecked.

*Refs: Bernie Ecclestone: Ross McEwan:


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