Nick Clegg pledges action against Britain's 'crony capitalism'

Deputy prime minister promises clampdown on company tax avoidance and 'abuse' of system by wealthy elites

guardian.co.uk, Patrick Wintour, political editor,  Thursday 5 January 2012

Nick Clegg addresses the Liberal Democrats' autumn conference in
Birmingham last September. Photograph: Darren Staples/Reuters

Nick Clegg has used his first intervention of the new year to map out a crackdown on "crony capitalism", vowing to take action against company taxavoidance, excessive executive pay and irresponsible capitalism.

The deputy prime minister said that millions of voters were "quite rightly angered" by the fact that a "wealthy elite of large businesses" was using an army of accountants to get out of paying a fair share of tax.

"They basically see paying tax as an optional extra, they pick and choose the taxes you pay. There should be a general rule that you can't play the system, you can't abuse the system."

He hailed a report commissioned by the Treasury from Graham Aaronson QC and published in November, which backs the introduction of a narrowly focused but general tax avoidance rule on the main direct taxes – income, capital gains, corporation and petroleum revenue taxes – as well as national insurance contributions.

Clegg said: "I very much hope – and I'm not going to write George Osborne's budget – we can make progress on that in the budget. We have got to make sure the tax system is fair."

Clegg made his remark in the knowledge that the Treasury was willing to press ahead in this area.

A Commons report last month criticised "specific and systemic" failures at Revenue and Customs that allowed big companies to avoid paying what was owed. David Hartnett, the agency's top official, is stepping down this month.

Clegg also promised action on executive pay: "It's Liberal Democrats who've led the debate on clamping down on bankers' bonuses and we must be just as tough this year in the bonus season that's coming up, as we were last year, if not more so."

He added that he was determined to clamp down on "crony" or "irresponsible" capitalism, phrases coined by the Conservative MP Jesse Norman.

The MP for Hereford and South Herefordshire, sees crony capitalism as a threat when there is insufficient competition, a factor leading to businesses becoming detached from the public interest.

Options under consideration include giving shareholders a binding vote on pay, and putting employees on company remuneration committees.

Shareholders in the UK have been entitled to an advisory vote on directors' remuneration reports since 2002. But the level of dissent against the reports in FTSE350 companies remains low – it stood at about 5-6% during the first four years after the vote was introduced.

It is estimated that 40% of shares are now held overseas, raising doubts as to whether shareholders will ever see the issue as a priority.

The business secretary, Vince Cable, would also like to see bonuses deferred for up to three years to ensure that improved performance is genuine.

While Cable has ruled out setting limits on compensation, he is also looking at stiffening reporting requirements for listed companies, including requiring publication of how much each board member receives.

The CBI has opposed a binding shareholder vote and a worker on boards. It stated: "We believe remuneration committees should be bolstered by widening the pool of non-executive directors that serve on them, and giving them greater scope to reduce or withhold rewards in cases of poor performance."

The CBI has said remuneration schemes should avoid complexity. A single aggregate figure, that includes share options and bonuses, for individual directors' pay, should be included in annual reports.

Patrick Wintour

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