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John McDonnell: We'll rewrite rules of economy to let workers and consumers take back control

NIcholas Cecil
PA

John McDonnell today vowed to “rewrite the rules” of Britain’s economy with controversial reforms including a pay cap below £350,000 for executives at many companies.

The shadow chancellor unveiled plans for a “new model of business”, likely to alarm many boardrooms, which aims to allow workers and consumers to “take back control”.

Critics will see the shake-up as allowing a huge transfer of power to the unions to challenge how companies are run which could damage the UK’s economy and send entrepreneurs moving abroad.

In a keynote speech in central London, Mr McDonnell announced:

  • Labour would rewrite the Companies Act so directors have a duty to promote the long-term interests of employees, customers, the environment and wider public.
Shadow chancellor John McDonnell delivers a speech on the economy (PA)
  • Such a reform could force bosses to radically change their company’s practices or risk legal action.
  • If Jeremy Corbyn gets into No10, the government would “move towards” a 20:1 pay ratio between lowest and highest-paid employees in companies bidding for public sector contracts, as well as in the public sector. If, for example, a worker was on the living wage of just over £16,000 a year, top executive pay would be capped below £350,000.
  • Supervisory boards could be set up at larger companies whose members would include customers, employees and long-term investors and would have “overall power” over the company’s direction. A third of a firm’s board would be workers.
  • The Corporate Governance Code and legislation will be amended to enforce a minimum standard for listing on the London Stock Exchange related to action to tackle climate change, a move which could hit the City and lead to major corporate listing in other finance centres.
  • Larger companies will have to transfer one per cent of their shares a year to an employee fund which could grow to 10 per cent of the company or a profit-sharing scheme for “equivalent benefits”.
  • The current dominance of the “big six” major accountancy firms in auditing firms will be ended, with a series of new regulatory commissions.
  • Shareholders who hold their shares for more than two years might be given strengthened voting rights.

Highlighting the scale of the proposed reforms, which have been drawn up with the unions, Mr McDonnell said: “Labour will rewrite the rules of our economy ... We believe that a new model of business is needed.

Jeremy Corbyn speaking at the CBI event on Monday (Sky News)

“Labour’s reforms to how large businesses and public utilities are governed, owned and regulated and how workers and consumers are represented will enable them to take back control.”

He claimed that at present companies are sold and takeovers take place “with employees treated as chattels”. He cited the collapse of Carillion, BHS and Thomas Cook as he attacked “short-termism” and insisted Labour wanted to create an entrepreneurial state.

With plans for higher taxes on the wealthy, people earning more than around £80,000 a year and big corporations, he condemned “grotesque levels of inequality” with around 150 billionaires in Britain while other people are queuing at foodbanks.

But John Caudwell, founder of Phones4U, warned that Labour risked stopping the “incentives” for people to develop successful businesses. “I don’t know how a society can improve by trying to disincentivise people to become wealthy and create jobs,” he told BBC Radio 4’s Today programme.

“The more wealth ... the more billionaires, the more industry, the more jobs that we create, the more the working man will get increase in wages because you create a competitive society, competitiveness for that working man’s time.”

He criticised the wealth gap in the UK but warned that taxing wealth would lead to rich people leaving the country. Mr McDonnell said scrapping tuition fees would be in the party’s manifesto, which is to be launched on Thursday, but he was vague about Labour’s plans for outstanding debt though said this needed addressing. His plans for the state to provide every home and business in the UK with broadband, by nationalising part of BT, has already been hit with backlash.