Philip Green and bad business – Lib Dems must act firmly

The collapse of Philip Green’s retail empire, Arcadia is a sad case of history repeating itself. It is only 4.5 years since BHS went into administration, and whilst Green was no longer the owner then, having sold it for £1 in 2015 to the serial bankrupt Dominic Chappell, it was under Green’s ownership in the previous 15 years that the under-investment and plundering of profits led to the situation where the chain was no longer viable.

Retail analysts are commenting that a similar set of circumstances mean Arcadia is now not fit for purpose. The shops look tired, and there has been a failure to embrace online technology at a time when going to physical shops is difficult for many customers. Additionally, Green is reputed to have taken huge dividends out of Arcadia – £1.2billion in 2005, all of which is safely secured in his wife’s name in the tax haven of Monaco.

Of course, this is an unparalleled time of difficulty for the retail sector, but as in all challenging situations, it is the strong who have the best chance of surviving.

Sadly, as in the case of BHS, it is not just the 13,000 employees of Arcadia – many of whom are also carers – facing possible unemployment who will suffer. The ripples spread widely to the supply and distribution network, at a time when so many people are facing huge financial uncertainty and difficulties. Moreover, then, of course, there are the pensioners. Like BHS, Arcadia has a big hole in its pension scheme – probably in the region of £350m. Earlier this year the Greens came to a shameful agreement with the Pension Regulator to cut the deficit reduction payments that the company was making to the Pension Scheme. However, the Regulator is believed to have insisted that Green’s wife Tina, the nominal owner, must pay a relatively paltry £100 million over three years to help plug the hole.

Meanwhile, some press reports indicate that the Greens will be spending Christmas in a luxury resort in the Maldives, that can cost up to £30,000 per night. Contrast that with the gross pay of an Arcadia employee on the minimum wage – just over £18,100 per year. The Greens are both heartless and shameless.

LibDems must use Parliament to call out bad business practices like this. For a start, what about holding de Pfeffel Johnson to account? A PMQ or other mechanism to demand he condemn the Greens, and a motion insisting that they fill the entire pension deficit before relinquishing the businesses would be a good start. And what about a referral to the Honours Committee to re-examine whether he should be stripped of his knighthood? It would also demonstrate clearly whose side we are on. This is not a time for half measures.

 

* Nigel Lindsay is a former Liberal councillor in Aberdeen and a longtime activist in the party, but consider himself an internationalist first and foremost.

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28 Comments

  • To summarise the bad business practices you call out:

    1. Paying dividends to owners and,potentially as a consequence, failing to stay competitive and/or being vulnerable to depressed high street shopping
    2. Using tax shelters
    3. Inadequately funding pension liabilities
    4. Going on luxury holidays

    Of the three I don’t think #1 and #4 are things a liberal government should attempt to regulate. Of course, we should sympathise and support the workers who lose their employment with adequate welfare, job support and retraining/educational opportunities.

    Re: Tax shelters – this is the Government’s responsibility to resolve through legislation.

    Re: Pensions funding – it seems like this is a failing of the Pension Regulator?

    I sympathise with the works and pensioners but making a bogey man out of Green is going after the wrong target in my opinion and won’t help them or subsequent employees and pensioners of failed businesses in the long run.

  • So nothing to do with banning people from shopping based on arbitrary rules about essential goods. It’s Philip Greens fault. Who are our MPS going to blame for the collapse of other service industries? Just do everything on line. Cities, jobs, social lives, the arts, and the rest can go rot, as long as MPs are seen to be fighting a virus with a 99.9% survival rate down to the last brick there can be no compromise. This is why I have vowed to stop voting until there are viable replacements to the current crop in the house of parliament.

  • Gwyn Williams 2nd Dec '20 - 11:36am

    After 2 High Street chains, in which the Greens have been involved have collapsed, there is a clear pattern. The employees of M&S should be grateful that Green failed in his takeover bid in 2004. In a capitalist system there will always be people who enrich themselves at the expense of others.

  • David Evershed 2nd Dec '20 - 12:45pm

    The retailer Bonmarche with 225 stores has also gone into administration today.

    Should the owner Philip Day be equally vilified?

  • Re: “3. Inadequately funding pension liabilities”
    Can’t seem to locate an approximate total fund size, and so covert shortfall into a percentage and thus compare against other pension funds.
    However, given what we know about the general health of pension funds, I suggest that from his comment “This is large, but not unprecedented” the pensions consultant John Ralfe, probably has the measure of the deficit, and that there are many other schemes out there that have far bigger shortfalls. For example, one of my funds only has sufficient monies to cover 38% of liabilities, if the company were to stop paying in.

    Interestingly, I note it has been reported that Arcadia stop paying the normal £2m pm contributions back in April so as to help retain monies in the company. It is a safe bet, that since April Arcadia have also not made any tax and NI contributions (yes these might have been listed as being deducted from payslips) – the lack of NI payments will impact employee’s entitlement to benefits. None of these can be regarded as being abnormal – I anticipate many other companies/organisations are doing similar.

    I agree with Freddie, given all schemes (in deficit) have agreements in place with the Pension Regulator, any issues with their arrangement with Tina Green, should be directed at the Government, to update the legislation [Aside: Remember the current legislation does’t prevent someone from doing a ‘Maxwell’…] and give the Regulator more teeth.

    If you don’t like the other aspect of this, then you also need to lobby the Government to change both domestic and international business law.

    I suspect what we are seeing is the double standard people like to adopt when dealing with businesses owned by individuals as we have with Arcadia and many Ltd’s operated by Contractors as opposed to businesses with wider ownership. So it is easy to vilify Philip Green and family, yet no one raised their voice when for example Toys R’us (USA) took effectively asset-stripped their overseas operations to prop up the faltering US operation, resulting in the collapse of the UK operation…

  • John Marriott 2nd Dec '20 - 1:44pm

    It would appear that the Philip Green modus operandi was vulnerable for some time. All the present crisis did was probably hasten its demise. To succeed you clearly need to be ahead of the curve. ‘Glenn’ can blame it on COVID (surprise, surprise). You might as well, as Eddie Gormé sang, “Blame it on the Bossa Nova”, or, if you prefer the Jackson’s, “Blame it on the Boogie”!

    Now, what was that item I was going to get today courtesy of Amazon?

  • Helen Dudden 2nd Dec '20 - 3:05pm

    Debenhams, are also closing their doors soon.
    Many pub chains will be going the same way.
    Last week I went into my local supermarket, and bought things for the Food Bank, I personally have found this so distressing, in my 72 years I’ve been through quite a few ups and downs. I’m ashamed of being British.

  • Jenny Barnes 2nd Dec '20 - 3:17pm

    I think the Navy should take his yacht(s).

  • Nonconformistradical 2nd Dec '20 - 3:27pm

    @Freddie
    “Of course, we should sympathise and support the workers who lose their employment with adequate welfare, job support and retraining/educational opportunities. ”

    Supporting these workers properly – and paying for that support – should be the first call on assets of investors in the failed business. Not dividends. As it is it seems the investors in a failing business can dump the real problems on the state and taxpayers.

  • David Evershed 2nd Dec '20 - 4:22pm

    A new law was introduced in December to give HMRC some improved preference when paying out creditors in an insolvency. From the Government website ……….

    Broadly, asset realisations are paid out to the following classes of creditor in this order:
    secured creditors with a fixed charge (after costs of realisation)
    insolvency practitioners’ fees and expenses
    preferential creditors
    secondary preferential creditors
    prescribed part creditors
    secured creditors with a floating charge
    non-preferential creditors
    shareholders (for insolvent companies) or individual (for personal insolvency cases)

    For insolvency procedures starting after 1 December 2020, certain sums due to HMRC but held by businesses when they enter formal insolvency rank as secondary preferential debts in the order of priority.

    This means they are paid ahead of secured creditors holding a floating charge (for example banks) and ahead of non-preferential creditors (for example suppliers).

    Only certain specified HMRC debts are included. These are:

    1. Value Added Tax (VAT)

    2. Debts that relate to the following taxes:
    Pay As You Earn (PAYE) Income Tax
    employee National Insurance contributions (NICs)
    students loan repayments
    Construction Industry Scheme deductions

  • David Evershed 2nd Dec '20 - 4:31pm

    Jenny Barnes

    Limited companies are a separate legal entity from private individuals. It is only in communist countries that private property is seqestered by governments.

  • Good to hear some straight down the line talking by Nigel Lindsay about Green and his ilk. Vivat radical social liberalism.

    I’d just add that Taveta Investments, acquired by Arcadia in 2002, is registered in the name of Green’s wife. As a Monaco resident, the company faced a significantly lower tax liability than if she were a UK resident. When Green paid his family £ 1.2 BILLION in 2005…., it was paid for by a loan taken out by Arcadia, cutting Arcadia’s corporation tax as interest charges on the loan were offset against profits.

    A question to any accountants on LDV.

    Did Sir Danny Alexander do anything about this practice between 2010-15, or was he too busy cutting public sector pensions and imposing a pay freeze at the Treasury ?

    Answers on a postcard, stamp with Sir Vince’s head on it ? ……. (Do it quick….cost going up again 1 January).

  • Peter Martin 2nd Dec '20 - 6:18pm

    @ David Evershed,

    “It is only in communist countries that private property is seqestered (sic) by governments.”

    You’re not familiar with western tax systems?

    Maybe we could introduce an tax? Designated in the the price of the requisite number of luxury yachts to make amends?

  • @David Raw

    The answer is (at least a partial) yes. The coalition introduced the general anti-abuse rule (GAAR) – https://www.gov.uk/government/publications/tax-avoidance-general-anti-abuse-rules in 2013. I haven’t looked into in detail but I believe essentially it means you can’t now use something that is solely for the purpose of avoiding tax in an abusive way.

    Tax avoidance (as supposed to evasion) is legal – if I claim things that I am allowed to against my PAYE thus avoiding tax then I don’t have to send HMRC a cheque. And rightly or wrongly owners of an asset can use it to borrow against and indeed millions of people do to take out a mortgage.

    I think that @Freddie has it about right.

    Phillip Green may not be the most ethical of businessmen but he seems to have been following the law and the Pension Regulator. It is up to Government to properly regulate businesses. Indeed I believe that companies have a statutory and financial duty to maximise returns to shareholders. That means at one level at least it is illegal for them to do anything other than minimise their tax payments and the amount they pay into their pension fund.

  • John Marriott
    Actually, I see people struggling with the finality of mortality. You get your three score years and ten. Everything on top of that is bonus. I just don’t see the point of wrecking the world to scrabble a few more months. No one really sees their grandchildren or anyone else grow up. To me there comes a point when you have to accept that everything will carry on just fine without you. Do you want people to grow up in a scared world with pointless social restrictions to make sure you fee safe or do you want them to them to grow up confident and in charge of their own lives? I’m in the latter group.

  • Nonconformistradical 2nd Dec '20 - 9:13pm

    @Michael 1
    “Tax avoidance (as supposed to evasion) is legal”

    There’s a big difference between being given certain allowances by HMRC – having made the necessary declarations – and hiding income and/or wealth in an offshore tax haven so HMRC never know about it in the first place. The former is OK and applies to everyone depending on their income, allowable expenses etc, but the latter is morally bankrupt behaviour on the part of the better off.

  • @Nonconformistradical – “There’s a big difference between being given certain allowances by HMRC – having made the necessary declarations – and hiding income and/or wealth in an offshore tax haven so HMRC never know about it in the first place.”
    In this case, it seems HMRC know all about the wealth, but is unable to do much because of the laws and treaties – yes what Philip and Tina Green have done is questionable, however, I doubt they have actually hidden the income (from HMRC) they gained from Arcadia, just like multi-national businesses use their wealth to set up arrangements that bend the international tax treaties to their advantage.

    Remember it is UK company law that permitted what is in effect a family business/fiefdom to grow to the size of Arcadia, so perhaps what is needed is a change in company law to make business interests more aligned with the common good.

  • Michael1 “Indeed I believe that companies have a statutory and financial duty to maximise returns to shareholders.” Do they? Was Philip Green successful? The business seems to have become bankrupt and now has little or no value. The process of financialisation employed within Arcadia and BHS is the same as that carried out within Boeing which brought the world the gift of the 737-max. Management not permitted, by the Board, to do what is neccessary for long term success in order to allow the extraction of cash. Maximising short term gains for share holders at the expense of a sustainable company. Is this Liberal? The Adam Smith Institute may agree with you, were Adam Smith able to pass comment himself he would not.

  • Philip Moss 3rd Dec '20 - 9:50am

    We had our chance, what did we do? We have know for 20 years that the high street could not compete with on line shopping. We did not level the playing field whilst we were in Gov. Take responsibility. Also with regard to tax, we should have insisted on stronger rules etc. The next time we go into Gov ? stand by our principles.

  • Liberal peer Lord Strasburger asked Lord Bethell ( a minister in the Department of Health and Social Care (DHSC), if the government intended to publish “a list of all companies who were contracted to supply PPE as a result of the high-priority lane” and if the name of the person who recommended the company would be published.

    Lord Bethell replied: “We do not intend to publish the list of suppliers who were awarded personal protective equipment contracts after having had their offers reviewed with more urgency, as there may be associated commercial implications.”

    Now THAT is ‘bad business’ using taxpayers money!

  • @Nonconformistradical @HughW

    There are a number of points that get mixed up in all of this.

    1. Owners can essentially do what they want with their assets within the law. Much is often made of owners taking dividends out of companies but it is their money in the first place. If you own 1 share worth £10 and you take a dividend of a £1 – you now have a share worth £9 and £1 in your pocket – you are no worse or better off. To that the Greens as sole owners of Arcadia could take essentially whatever dividends they like out of it. Of course it does seems that they did this as a “tax dodge”.

    But often @HughW it pays business owners to do the “ethical” things – simply in financial terms because consumers will support them and they will make more money.

    2. Big losers in this are the Greens – now I shed no tears for them but they own an asset that through their running of it – at one point was worth at a guess several hundreds of millions of pounds and now is worth virtually nothing.

    3. Whether it is “morally bankrupt” to pay (legally) less tax than one could is an interesting point – certainly one can say the opposite that to pay more tax than one could is morally praiseworthy. Many employees get a tax break on loans that their companies make to them for example to buy rail season tickets. Should they send HMRC a cheque to fund MPs’ subsided meals, the Government’s wine cellar and art collection? Answers on a postcard, please. As I say the coalition introduced the General Anti-Abuse Rule.

    4. Living in low tax jurisdictions or taking one’s money “offshore”. Often tax etc. does become payable if you “onshore” the money. But many sports stars for example just happen to resident in Monaco. I am not sure that there is any moral imperative to be resident in the UK just for the convenience of the British treasury – much though they might like it.

    5. High Streets. High Streets covers a multitude of things. And clearly they are under immense pressure. But I would venture that rumours of its death have been exaggerated. There are quite a lot of business that run successful “high street” shops with no or little website presence – for example Primark, Lidl and Aldi or run very successful “bricks and mortar” only businesses One feels immensely for those that are losing their jobs at Arcadia but actually when Woolworths went bust – there were quite a lot of shops that then did roughly what they were doing but more successfully.

  • Nonconformistradical 4th Dec '20 - 7:38am

    @Michael 1
    “Should they send HMRC a cheque to fund MPs’ subsided meals, the Government’s wine cellar and art collection? Answers on a postcard, please. ”
    Since MPs’ basic salary is way above the median full-time income their meals etc. shouldn’t be subsidised in the first place.

    “As I say the coalition introduced the General Anti-Abuse Rule.”
    How well is it being enforced?

  • @Nonconformistradical –
    “Since MPs’ basic salary is way above the median full-time income their meals etc. shouldn’t be subsidised in the first place.”
    This an interesting little point to discuss just what is a ‘subsidy’. I once worked for an employer who provided meals at ‘cost’, namely they paid for the canteen and staff, the workers just paid the cost of food. Clearly, a pub or restaurant couldn’t operate on this basis, so we do need to define whether a ‘subsidy’ is any financial payment that means the service user pays a significantly lower price than a “fair market price”.

  • David Garlick 4th Dec '20 - 12:50pm

    For me the Key Point from the article is to ban the payment of dividends until the Pension scheme is in balance. That may need a global sign up but it is worth the fight to get it. As part of that deal Companies should be able to take money out of the scheme if the amount therein is more than an agreed percentage point above balance.
    Where there is a will there is a way…

  • @Nonconformistradical @Roland

    I was of course being a bit disingenuous! There are of course some useful things that tax can be put towards such as keeping friends of the Tories in the manner they have become used to through buying PPE from them at vastly inflated prices from companies that they just set up and which have no track record in producing PPE 🙂 !

    In fact come to think of it – Sir Phillip could have got Arcadia to start producing expensive PPE – only one phone call to a minister was needed – shows what a useless businessman he is!

    Parliament overall costs £500 million to run. Don’t know why! I’d stick them all on an industrial estate with a handy Gregs nearby. The job of an MP must be the simplest in the whole world to do. All you need is to take the piece of paper from your party whip and vote accordingly. Pay1ing them the minimum wage is too much – but hey if that is a legal requirement so be it (may be we could get them to do some sewing of PPE at the same time)! Indeed it is so simple even a primary school child could do it. In fact they would be better at it – at least they would be better behaved!

    https://www.instituteforgovernment.org.uk/publication/parliamentary-monitor-2020/cost-administration

    Catering was subsided by 20% in 2018/19. In 2011 it was almost 50%. And of course there are MPs’ staff and Commons and Lords staff working there who are not necessarily well paid. I believe that there are restaurants that are only for MPs or Lords and I believe it is one of the cheapest places to get a high quality three course meal in central London

    https://www.parliament.uk/site-information/foi/transparency-publications/hoc-transparency-publications/catering-services/transparency-reporting-catering-services/

    I believe it is generally considered that the House of Lords is the best Gentlemen’s [sic] club in London to be a member of and may be Lords Wallace and Greaves of this parish can confirm that. With the added advantage that you don’t have to pay – you get paid and then only for “attendance” not for doing anything much.

    And rumour has it that a new bar has opened. Gove’s superior quality Scotch egg emporium. You order 10 pints and get a free Scotch egg thrown in for free.

  • “How well is it [GAAR] being enforced?”

    I believe it is thought to be quite tough by tax accountants. There is a House of Commons library briefing at https://commonslibrary.parliament.uk/research-briefings/sn06265/ The 2020 budget had this to say on avoidance and evasion: “Since 2010 the government has secured and protected over £200 billion of tax that would have otherwise gone unpaid. The Budget builds on this work….”

  • There’s Capitalism and Capitalism. There’s a qualitative difference between the behaviour of (Sir ?) Philip Green, Mike Ashley and there fellow robber barons and the old Liberal philanthropists such as the Rowntree and Cadbury families.

    Readers may be interested to know there’s a petition on the 38 degrees website to strip Green of his knighthood. It won’t put many Christmas turkeys on the table, but it might send a message. …www.independent.co.uk › life-style › philip-green-knig…
    Petition to strip Sir Philip Green of knighthood reaches almost 195,000
    In the wake of Arcadia falling into administration, its pension scheme is operating under an estimated £350m deficit.

    My friends Katharine Pindar and Michael Berwick-Gooding are working on a Beveridge 2 Social Contract idea. I’d suggest to Nigel and colleagues a good parallel two pronged companion to this would be a ROWNTREE/CADBURY Mark 2 Programme to establish standards of enlightened working conditions and industrial democracy.

  • there their…. apologies for typo.

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