David Davis writes in the Financial Times about Philip Green, the demise of BHS and the dark side of capitalism


As published in the Financial Times:

It is hard to see an upside in the demise of British Home Stores, the octogenarian department store with more than 11,000 employees. Sir Philip Green bought the business — started in south London with all stock sold at a shilling or less — for £200m in 2000. He and his family received £586m in dividends, rental payments and interest on loans before he sold BHS for just £1 last year.

This is the dark side of capitalism: in­creased borrowing and payment of ever bigger dividends; risk transferred from the private to the public when the business fails; the low paid and the taxpayer left to pick up the bill. It is all worryingly reminiscent of the 2008 banking crash.

Sir Philip, the king of shops, has led a life that would put Louis XIV to shame, acquiring three super­yachts and even a solid gold monopoly set with the locations changed to those of the Green family businesses.

Meanwhile, the BHS pension fund fell from a surplus of £17m in 2002 to a potential deficit of £571m today, a sum strikingly similar to the profit taken out of the company by the Greens. BHS has not made a profit since 2008.

How has this happened? By paying bigger dividends than would have been possible without, among other steps, underfunding the pension fund and in effect paying dividends out of borrowed money, the Greens were able to withdraw large sums from the business. Without the necessary investment, and saddled with debt, the company has simply not been able to compete in a highly competitive sector.

It was no surprise that the buyer of BHS, Retail Acquisitions — run by the twice-bankrupt Dominic Chappell — has failed. Why did the directors permit a serious business, with significant pension liabilities, to be acquired by a group that had no chance of turning it around? Of course, this has not stopped the new owners from taking more than £25m out of BHS for just over a year’s work, albeit including more than £11m for legal and professional fees.

Sir Philip, knighted in 2006 for his services to retail, will now be chased by the pensions regulator to plug the gap in the pension fund. He should be called on for the full amount. In his desperation to shed himself of BHS’s significant annual losses, it appears he did not do sufficient due diligence on the business to which he consigned BHS and the livelihoods of its workers.

Unless every penny of the pension fund deficit is recovered, staff who are yet to claim their pensions — many of them on the minimum wage and not best placed to shoulder the burdens of failure — will receive significantly less than they were expecting.

The BHS story is a case study in many unpopular aspects of modern capitalism: exploitation of limited liability, loophole-ridden tax law and intricate accountancy. Is it any surprise that confidence in the system is falling, and that those who offer alternative views, such as Jeremy Corbyn in the UK or Bernie Sanders in the US, have built up large followings?

If we start to address these abuses, some good may yet be salvaged from the wreckage of BHS. We must ensure the corporate veil is easier to lift to prevent socialised losses. We should move the economy from tax-subsidised debt finance towards longer-term investment in businesses. We must make it harder for businesses to pay vast sums to shareholders and management when a company is failing. The government must review its approach to the financial engineering of businesses to eradicate tax liability and park financial risks anywhere but on the owners. It should rewrite the companies and finance acts accordingly.

The alternative is that capitalism’s reputation continues to decline. And Sir Philip, with his billions, his yachts and his willingness to walk away from a failing business, pension liabilities and job losses, is just the sort of capitalist to give capitalism a bad name.