Tuesday 26 July 2016

Finding the real culprits

Demanding that Sir Philip Green should be stripped of his knighthood, as several Labour MPs have done, is an easy way of attracting a headline or two.  It avoids the need for proper discussion about what changes might be needed.  It also fits the prevailing narrative about ‘holding people to account’, and demanding ‘justice’ - although scapegoating seems a better description to me.  It doesn’t actually help the employees or pensioners of the company, though.  Worse, I’m also not convinced that they’re going for the right target, as opposed to the easy one.
As far as I’m aware, no-one has yet suggested that Green has broken any laws – if that situation changes, then clearly he should be brought before the relevant courts and dealt with.  The suggestion is, rather, that he has been incompetent, reckless, greedy, or perhaps lacking in a sense of morality and decency in the way he has treated the staff involved.  All of those things may or may not be true; but the question about how this was allowed to happen stands.
BHS isn’t the only company facing a huge pension deficit; there’s a similar issue facing the employees of Tata and many other companies.  What we should be considering is how these pension deficits have arisen, and what we need to do to prevent more of them.  Pensions is a complicated issue, and expecting our MPs to turn their attention to that instead of seeking easy headlines looks unrealistic; but if pensions deficits on this scale can be so commonplace and entirely legal, surely the people we should be looking to ‘hold to account’ in the first place are those responsible for lax legislation and regulation – i.e. the MPs themselves.
There are a number of different things which have led to the scale of some of the pension deficits.  One of those was the change in the taxation regime for pensions introduced by Gordon Brown, and voted through parliament by – the Labour MPs now demanding action against Green.  The problem with Brown’s changes wasn’t that they were wrong in principle, but that they came without warning and were introduced in a single year.  There was no opportunity for adapting to the new regime or to phase in changes (including increased contributions).
A second issue is the requirement – again imposed by parliament – for pension funds to publish details of their funding situation as though they were about to be wound up.  The logic of this is entirely sound (and it’s a valid basis in the case of BHS), but for most pension funds, this accounting basis is both unrealistic and significantly exaggerates the scale of any likely deficit.
But another, and the most pertinent in the case of Green, is that employers can get away with making inadequate contributions to the fund, sometimes over a long period.  When I first joined a pension scheme, too many years ago, I remember being told that it was really ‘deferred salary’.  That is to say, the contributions being made by my employer were part of my overall salary, put aside to guarantee certain benefits in retirement.  From this perspective, the failure of any employer to make and maintain adequate payments over the long term (accepting that there are sometimes short term issues which can lead to a temporary shortfall) to meet the commitments given to staff is like failing to pay staff the wages due to them.  But the latter is a crime; the former is not.  Why not?  Again, we have to turn to our parliamentary representatives if we want to know who to blame.
Demands by MPs for tokenistic action against an individual may indeed make good headlines – but they also divert attention from the real culprits, the lawmakers themselves, who have consistently failed to ensure that the legal framework for pensions simply does not allow unscrupulous employers to get rich at the expense of their staff and pensioners.

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