John McDonnell has promised that a Labour government would “rewrite the rules of our economy” as he announced proposed reforms to business regulation that he said would help workers “take back control”.
In a speech that made a series of attacks on corporate excess, the shadow chancellor declined to confirm that Labour is planning a windfall tax on oil and gas companies – a policy Labour had been seriously considering in recent days.
But he outlined a series of far-reaching changes to the “regulatory architecture” that governs how Britain’s businesses can behave.
“We aim to take on the excesses of the shareholder model and lay some of the foundations of a stakeholder economy,” he said. “Today’s business model of shareholder domination is increasingly proving to be incompatible with not just the fair and respectful treatment of workers but also with the responsibilities associated with any organisation operating within a democracy.”
He said a Labour government would establish a series of powerful commissions to oversee corporate behaviour. An overarching business commission would contain within it three separate watchdogs – a companies commission, a finance commission, and an enforcement commission.
Answering questions afterwards, McDonnell confirmed he would like banks to be included in the new system, in what could be the biggest shake-up of financial regulation since 1997 when Gordon Brown made the Bank of England independent. “My own view is that I would like to see banking within it,” he said.
McDonnell outlined a series of perceived faults with the way shareholder capitalism worked, including short-termism, excessive executive pay, the lack of bargaining power for workers and the “cartel” behaviour of the big four accounting firms.
He said Labour would force the big four – Ernst and Young, Deloitte, KPMG and PwC – to separate their audit and non-audit businesses. This would be aimed at avoiding the conflicts of interest he claimed could arise when the firms were selling consultancy services to the same company whose accounts they were meant to be casting a sceptical eye over.
McDonnell also said a Labour government would establish a “statutory auditor” to carry out its own checks on companies. “Its purpose will be to conduct real-time audits of banks, building societies, credit unions, insurers and major investment firms. The auditor will not be dependent on fees from client companies and as a result could become independent and robust,” he said.
He said Labour would rewrite the Companies Act to ensure firms were responsible to employees and customers as well as their shareholders, and insist that one-third of board members were staff.
Larger companies would also be given the option to create a German-style two-tier board structure, with a separate supervisory board having oversight over executives.
McDonnell confirmed that Labour would force large companies to establish an “inclusive ownership fund”, in which they would be obliged to set aside up to 10% of their shares for employees, who would then be entitled to receive dividends worth up to £500.
The policies have been drawn up with the help of academics including the accounting expert Prem Sikka.
Business groups responded warily to McDonnell’s speech. The British Chambers of Commerce warned against a “one size fits all” approach.
The BCC’s co-executive director Claire Walker said: “It’s one thing to support employee ownership, stronger corporate governance and a transition to a greener economy, which have had positive impacts on many firms. But it would be misguided to impose a rigid, one-size-fits-all approach.
“Getting our economy moving requires serious investment in skills, infrastructure and a reduction in business costs. But extensive government interference in ownership and governance could deter investors and damage confidence.”
