Prem Sikka says reversing corporate capture of the state to pay for public services and a people’s economy is essential for Labour
“Government of the people, by the people, for the people” remains an idealist aim ever since Abraham Lincoln spoke those words in 1863. We are nowhere close to it. At best, neoliberal democracy is a conflict management system in which corporations and wealthy elites use their resources to colonise the political system to advance their interests.
No one ever voted for austerity, poverty, poor housing, low wages and pensions, corporate profiteering; cuts in education, closure of youth clubs, libraries and community centres; lack of healthcare or social care, premature death of their loved ones, or any of the other social ills bedevilling the UK. Yet these are inflicted upon the people by governments more concerned about corporate welfare. Indeed, parties compete to see who can craft a bigger dose of austerity and hand more public services to the exploitative private sector.
Corporate capture of the state is institutionalised. Corporations and wealthy elites fund political parties and legislators. Their ideological prejudices are presented by corporate funded think-tanks as policy options, eagerly embraced by political parties hungry for private money. Ordinary people never get a chance to shape policies.
In July 2024, the Labour Party won the UK general election. Just 33.7% of the share of vote gave it a huge majority in the House of Commons, even though it secured half a million fewer votes than in the 2019 general election. This precarious victory was built on corporate patronage. With the sun setting on the Tories, Labour was getting more in political donations than all other parties combined. It cashed in £19.5m from just 11 donors, including industrialists, hedge funds and gambling tycoons.
Corporations seconded staff and showered gifts to shape policies. Labour indulged corporate elites and lobbyists through meetings, dinners and lunches to reassure them that it would not disrupt their wealth and power accumulation. Lobbyists hired Labour MPs and staffers. Finance industry chancers such as BlackRock, Macquarie, HSBC, Bloomberg, Lloyds, Brookfield Asset Management and Blackstone had easy access to the Labour leadership. Big accounting firms that routinely deplete the public purse by crafting tax abuses provided free staff.
The private sector does not donate money. It invests and expects a return. The main aim is to strangle unwelcome laws and regulation and secure favours. Chancellor Rachel Reeves proudly told business chiefs that “their fingerprints” could be seen all over the party’s manifesto. The manifesto promised not to hike taxes on wealth and keep the public purse open for corporations. It promised economic growth but made no mention of how that would be equitably shared. The richest 1% has more wealth than 70% of the population combined. The bottom 50% of the population owns less than 5% of wealth. Some 37% of total disposable household income in the UK goes to the top fifth of individuals, while 8% went to the lowest fifth. The median pre-tax wage of £28,584 is lower in real terms than in 2008.
Almost the first act of the newly elected Labour government has been to reaffirm the Tory two-child benefit cap, the biggest cause of child poverty. It affects some 1.6m children and deprives their families of £3,455 a year, subjecting many to hunger and hardship. Seven Labour MPs, lifelong anti-poverty campaigners, who voted against the government, had their whip withdrawn.
Pensioners came next. Without any commitment in the manifesto, the government has abolished the Winter Fuel Payment, worth between £100 and £300, for pensioners not receiving pension credit or other means-tested benefits. To receive pension credit a single pensioner needs to have an income of less than £218.15 a week and couples must have joint income of less than £332.95 a week. The UK state pension is less than 50% of the minimum wage. 2.2m UK retirees live in poverty. 2.5m skip meals and 1.3 million are at risk of undernourishment. Around 68,000 retirees die in poverty each year. Last year there were nearly 5,000 excess pensioner deaths from cold. Yet Labour has cut Winter Fuel Payments without any consultation.
Ever since the 1980s, the UK state has been restructured to become a major guarantor of corporate profits through privatisations, outsourcing and the private finance initiative (PFI). Labour promised to continue with this. Its manifesto promised to de-risk additional private investment i.e. guarantee corporate profits. A key vehicle for this is the £7.3bn National Wealth Fund for investment in public projects. Its aim is to secure £3 of private funds for every £1 of public cash, though no mention is made of the returns guaranteed to the private sector. It is a revival of the PFI scheme which ran from 1992 to 2028, under which the government secured £60bn of corporate finance with repayments of over £306bn. The £9bn Lower Thames Crossing may be the first PFI project under the Starmer government.
Following its manifesto promise, Labour is to bring rail passenger services into public ownership. However, rolling stock companies (ROSCOs), the most lucrative part of the rail industry, will remain in private hands. Just three companies own 87% of rolling stock which they lease out to train and freight operating companies. They are owned by financial services and infrastructure investment companies located in low/no tax jurisdictions. ROSCOs paid dividends of £409.7m in 2022-23 and had a profit margin of 41.6%. The Labour government will not disrupt this outflow of cash, the cost of which is ultimately borne by the public purse.
After the 2007-08 financial crash, the UK state provided £1,162bn of cash and guarantees (£133bn cash + £1,029bn of guarantees) to bail out banks. Another £895bn of quantitative easing was handed to capital markets. An EU-backed law sought to curb reckless risk-taking by imposing a cap on bankers’ bonuses. In 2023, the Conservative government abolished the cap. Labour appeased its corporate backers by supporting the abolition and has promised not to reintroduce it. Senior bankers stand to get bonuses of ten times their basic salary.
Labour fully supported the Financial Services and Markets Act 2023 which reversed another pillar of the post-crash reforms. It requires regulators to facilitate the international competitiveness of the UK economy, and its medium to long-term growth. This is effectively a race-to-the-bottom with light-touch regulation which inevitably erodes a consumer protection mandate of the regulators. The Labour government is now putting pressure on the UK’s financial services regulators to promote the growth of the City of London. Chancellor Rachel Reeves is set to carry out a “financial services review to go through the rulebook and tear up rules that are unnecessary or duplicative”. The deregulatory move is an attempt to grow the finance industry described by the Chancellor as a “jewel in the crown of the UK economy”. Between 1995 and 2015, the finance industry made a negative contribution of £4,500bn to the UK economy.
There are some positive signs in that the government has approved a 22% pay settlement for junior doctors and public sector workers are in line for a 5.5% pay rise, though the real average wage in the UK is unchanged since 2008. The government has become a slave to its arbitrary fiscal rules and the Chancellor has referred to “tough decisions on welfare and spending”, a code for another bout of austerity.
We can now see that it is business as usual. No matter what the outcome of any election, one group always wins: that is big corporations and wealthy elites. Their power ensures that corporate welfare programmes continue unabated whilst the welfare of children and pensioners is downgraded. Dreaded PFI has returned and private equity and hedge funds must be laughing all the way to the bank. Good purchasing power for the masses is essential for any sustained economic revival but Labour has not indicated any plans. Corporate takeover of the Labour Party is already delivering huge dividends for its backers. But this will only disenchant people and drive many into the arms of the far-right extremists. A change of course is urgently needed, but that requires Labour to stand up to organised corporate interests.
It is appropriate to end this article with a quote attributed to Abraham Lincoln: “I see in the near future a crisis approaching that unnerves me and causes me to tremble for the safety of my country… corporations have been enthroned and an era of corruption in high places will follow, and the money power of the country will endeavor to prolong its reign by working upon the prejudices of the people until all wealth is aggregated in a few hands and the Republic is destroyed.”