The sheer scale of the global financial crisis has forced Gordon Brown and the government into making a few critical noises about “excesses” in the City and corporate greed.
But New Labour has been tied to and subservient to big business throughout its time in office. This is not simply an ideological commitment – there are deeper economic reasons for this close relationship.
Despite the rhetoric you hear from business leaders about “freedom from state interference” and “cutting red tape”, corporations need a smooth relationship with the states they operate in.
In recent years big business has attempted to make government the direct servants of its immediate needs. You can see this most starkly when companies get into trouble and demand that the government bails them out.
But there is a wider background process of corporations asserting their control over the state. Thousands of private sector lobbyists swarm around Westminster jostling for access and influence.
Capitalism is built on competition, which creates pressure on each company to gain an advantage by developing strong relations with the state while cutting out its rivals.
Public relations firms set up “public affairs” departments dedicated to lobbying MPs and ministers. These tend to recruit individuals who have been members of the political elite or have worked closely with government ministers and top party officials.
New Labour has been an eager partner in this process of buying up political influence. Brown has even fast-tracked the whole process, bringing private equity bosses directly into government and making a former head of the bosses’ CBI organisation a trade minister.
The push for more privatisation has also strengthened the links between government and business. Over 24 former Labour ministers and senior civil servants are involved in the Private Finance Initiative (PFI) industry.
These include former Labour health minister Alan Milburn. He is a director of Covidien, which describes itself as “a $10 billion global healthcare products leader”.
Milburn is also a member of Lloyds Pharmacy’s healthcare advisory panel, and an advisor to leading private equity firm Bridgepoint, which specialises in healthcare investments. He gets £75,000 a year from these companies.
Former education and home secretary Charles Clarke is a non-executive director of the LJ Group, which supplies training services, teaching materials and equipment to schools.
Clarke is a also consultant to accountancy firm KPMG on public sector reform. He advises Charles Street Securities, an investment banking and private equity fund management firm. On top of all that, he is a consultant to Beachcroft, a legal firm specialising in PFI deals.
Patricia Hewitt was health secretary from 2005 to 2007. She is now paid over £55,000 a year to be a senior advisor to Cinven, a private hospitals and healthcare group that is backed by private equity. Hewitt also gets a further £45,000 a year for being a special consultant to Alliance Boots, which is owned by private equity firm KKR.
And it’s not just ministers. Some of the government’s most senior officials also have extremely close ties to some of the biggest banks – and vice versa.
Jonathan Powell, former chief of staff to Tony Blair, is now at investment bank Morgan Stanley. Jeremy Heywood, now the top civil servant at 10 Downing Street, worked for Morgan Stanley in the past.
This movement from government to the banks and back again is going strong under Brown’s premiership.
The close connections between New Labour and the City are just one aspect of a wider picture of the ultra-rich being given a free hand by this government to make money at our expense. And even with economic disaster on the horizon, they are still making a pretty packet.
Stephen Green, chair of the HSBC banking group, said last week that the the £14 billion paid out last year in bonuses by London’s financial institutions was “excessive”.
He has a point. Green received a bonus of £1.75 million last year, on top of his £1.25 million a year salary. Last week HSBC announced 1,100 job cuts.
It is in the nature of the economic crisis that while banks and companies fail, some rich individuals carry on doing very well.
About 80 percent of those worth £50 million or more plan to splash out more of their obscene riches this year, according to a survey by US-based wealth analysts Prince & Associates.
The number of billionaires worldwide is growing by almost 20 percent a year, according to Forbes magazine.
There were 476 billionaires in 2003 – this grew to 946 by 2007. A further 179 have joined the ranks since.
The richest 50 people in the world are now worth £723 billion, a 23 percent increase on one year ago. The richest man in the world, Warren Buffett, has a net worth of almost £62 billion.
In the US the richest 0.5 percent of the population spends £75 billion a year – equal to total household expenditure across the whole of Italy.
London boasts 36 billionaires. These include Lakshmi Mittal, the steel mogul worth £28 billion, and Roman Abramovich, the Russian oligarch whose personal fortune stands at £12 billion.
In the middle of the economic crisis some companies are making a fortune gambling on the chaos.
There are an estimated 8,000 hedge funds around the world controlling around £1.37 trillion – a sum that would pay for over 9,000 hospitals at £150 million each.
The job of hedge fund managers is to make the very rich – a category that conveniently includes themselves – even richer.
For instance, Philip Falcon made millions gambling that HBOS’s share price would plummet.
He recently bought a £24 million home that boasts a room specially built for Pickles, his pot bellied pig.
He “earned” £950 million last year and his firm now manages two funds with a total value of £10 billion.
John Paulson, another billionaire, placed a near £1 billion bet that that bank share prices would fall.
But it isn’t just a matter of individual “rogue traders”.
One of the companies betting on banks’ shares falling was Barclays Global Investors – owned by Barclays Bank. The ultra-secretive, mega-rich elite plies its trade behind the brass plates in the Mayfair and St James’s districts of central London.
One leading hedge fund manager, who was recently asked about what he did, replied, “It is none of your business – and until you have £1 million to invest and become a client, it will remain none of your business.”
Billionaires who’s who
Crispin Odey is one of London’s leading hedge fund managers and was outed as betting on bank shares plummeting during the financial crisis. He paid himself a cool £28 million this year.
Profits disclosed by his Odey Asset Management firm reveal that the company made £55 million in the year to 5 April. After Odey’s massive salary, the remaining £27 million was distributed between 11 partners in the firm. Odey Asset Management has £2.6 billion of funds under management and tripled its revenues to nearly £65 million last year.
Odey has been jokingly referred to as one half of the Posh’n’Becks of the City – he is married to Nichola Pease, a fund manager and heir of one of the Barclays banking families. Pease was one of the directors of Northern Rock before it went bust.
Odey and his wife are reckoned to be worth more than £300 million between them from their stakes in Odey Asset Management and in her company JO Hambro Capital, an offshoot of the Hambro banking empire.
From GLG Partners’ office in a glass-fronted building in Mayfair, Noam Gottesman recently summed up his skills to a client in three words – “I make money.”
Gottesman and co-founder Pierre Lagrange are both ex-Goldman Sachs and Lehman Brothers traders. They are comfortably billionaires.
GLG Partners are the biggest players in the European hedge fund industry. Each of the partners holds £250 million stakes in the firm.
Its overseas assets are worth about £11 billion and last year Gottesman made an estimated £400 million.
Tragically, Gottesman is currently renting a house in Belgravia after being gazumped on a £27 million house in Chelsea. His rent is £20,000 a week.
Gavyn Davies used to work for the investment bank Goldman Sachs, where Hank Paulson, US treasury secretary, used to be chair and chief executive. Davies is married to Sue Nye, Gordon Brown’s fixer and gatekeeper.
Davies was the chair of the BBC from 2001-4 and is a former economic advisor to the government. He is reported to have £150 million. Davies has in the past donated to the Labour Party and has been a long term supporter of the party.
He worked in Harold Wilson’s policy unit from 1974-6 and then as an economic advisor to James Callaghan from 1976-9.
Afterwards he had stints as chief economist at Simon & Coates and Goldman Sachs. He was later promoted to Goldman Sachs’s international managing director.
Tom Scholar is a senior civil servant and a director of Northern Rock, now owned by the government. He was previously chief of staff for Brown at 11 Downing Street and also an executive director at the World Bank.
Sir James Sassoon
Sir James Sassoon quit his post as Alistair Darling’s ambassador to the City earlier this month. Sassoon has technically been working as a civil servant in the treasury since 2002.
From 1985 to 2002 he was vice chairman for investment banking at UBS Warburg’s global privatisation business. Sassoon advised government departments on a variety of privatisation projects.
He was awarded a knighthood in recognition for his services to the finance industry this year. He is now advising the Tories on the City.
Baroness Shriti Vadera
Baroness Shriti Vadera, the parliamentary under secretary of state for business and competitiveness, is allegedly the person Brown trusts more than any other in his government.
She arrived at the treasury in 1999 after 14 years at the investment bank UBS Warburg where she had pioneered a privatisation programme in South Africa.
She has been involved in a number of high profile PFI and public-private partnership (PPP) processes, including the part privatisation of the London Underground train system.
Tucked away in a townhouse on Dover Street in Mayfair, nestling among the posh shops and restaurants, sits Fleming Family & Partners – just one of the numerous investment services tailored towards the ultra-rich.
In order to get your foot in the door and to stand on the fine Turkish carpets, you need to have at least £10 million of ready cash to invest.
In return, you get small army of financial flunkeys to advise you on keeping down tax bills and to offer you a range of investments.
There is a cheque book and dark green credit card, both of which signal that you are seriously rich. The bank manages £6.3 billion of assets and trusts for 41 wealthy families.
Fleming is a major shareholder in Jersey-based Highland Gold, which owns and runs goldmines in Russia.
It bought them several years ago from Roman Abramovich at a rather low price.
The bank has close links with billionaire businessman Wafic Said. In 2005 it bought Sagitta Asset Management, which looks after investments of other wealthy Middle Eastern families.
Said’s son Khaled sits on the Fleming board. Wafic Said was the subject of a Serious Fraud Office investigation – abandoned by the government – into a slush fund to induce Saudi Arabia to buy British weapons.