Multinational Chairman's Group

Referred to by the Daily Mail in 2003 as 'discreet', the Multinational Chairman's Group is extremely obscure.

Alleged 'red tape'

I gather that the slightly mysterious Multinational Chairmen's Group (MCG) has this week lobbied Blair with the fairly unequivocal message that he had better pull his finger out over industrial policy or they will move their principal operations out of the UK. In the slightly quirky way in which the British name things, this "chairmen's" group also includes chief executives, but Blair will be assured that he is dealing with the very top of our industrial hierarchy. The line-up is said to include BP and Shell, GlaxoSmithKline and AstraZeneca, Vodafone, British American Tobacco, Rio Tinto, HSBC and Unilever.

This isn't exactly the equivalent of Spain's Opus Dei, but Blair will have been in no doubt that he is fac-ing the British industrial equivalent of the Mob. These are people who, collectively, can call the economic shots, if they so wish, just as effectively as the trades unions did back in the Seventies. And it seems that they are heartily sick of a spin-culture in which presentational lip-service is paid to free-market economics, while industry is concurrently burdened with intrusive regulation and ever- higher taxes.

Among their gripes, they claim that the (now diluted) corporate- governance guidelines of former in-vestment banker Derek Higgs have disfranchised chairmen; that public spending is inefficient and wasteful; that, as a consequence, the transport infrastructure is hopeless and getting worse; that non-domiciliary executives are discriminated against and that new caps on personal-pension provision are a hidden super-tax. The threat is that, since Blair's Government has created a hostile environment in which to do business, multinational companies will find somewhere more agreeable to base their operations unless some political olive branches are extended.

BREAKFAST with Blair was almost a cosy affair for the nine multinational business leaders who trooped into Downing Street just before 8am yesterday - at least compared with the ride the Prime Minister endured later in the day when he had tea with the more vocal TUC delegation.

Over coffee and croissants Mr Blair and the team from the Multinational Chairmen's Group, led by Niall Fitzgerald, Unilever chairman, discussed in businesslike fashion world trade issues and, according to sources, touched on more delicate issues nearer home, including the euro, competitiveness and economic policy.

Other businessmen in the select group around the table were Lord Browne, chief executive of BP, Sir Philip Watts, chairman of Shell, Lord Blyth, chairman of Diageo, Sir John Bond, chairman of HSBC, Sir Rob-ert Wilson, chairman of Rio Tinto, Martin Broughton, chairman of BAT, Sir Christopher Hogg, chairman of GSK, and Arun Sarin, new chief executive of Vodafone. Downing Street, irritated by weekend reports about the confrontational billing tied to the meeting, at-tempted to downgrade the importance of the encounter, describing the hour-long discussion as a "useful ex-change of views" at a "private meeting". Group members were equally anxious to downplay the meeting and were coy about discussing the more sensitive subjects on the agenda, notably whether an exodus of capital and leading companies is in prospect unless Britain joins the euro.

The group - whose existence is largely unknown - was set up to try to rise above the hurly-burly of nor-mal government and business debates and avoid the mistakes of earlier business lobbies by providing an international rather than domestic perspective to issues. It meets informally three times a year and has an annual meeting with the Prime Minister.

Members of the Multinational Chairmen's Group of UK-based international companies who met Mr Blair yesterday included HSBC's chairman, Sir John Bond, Unilever's chairman, Niall FitzGerald, and Voda-fone's chief executive, Arun Sarin. Other companies represented included BP, Shell and British American Tobacco. Tony Blair was accompanied by Patricia Hewitt, the Secretary of State for Trade and Industry. Business leaders are worried that Mr Blair may make concessions to the trade unions, who are demand-ing more rights in the workplace, in an attempt to bolster his position inside the Labour Party.

Digby Jones, general secretary of the CBI, who will address next week's TUC conference in Brighton, attacked union demands for a return to secondary picketing, saying this would mean the dead not being bur-ied as during the 1978-79 "Winter of Discontent". Mr Jones criticised the "relentless build-up of employment legislation". He warned: "If you are in a board-room in Detroit, Tokyo or Seoul, why would you think that Britain had done anything other than gone back 35 years? And they might just think of putting their investment cheque in another country. Does that help the average trade union member?" The intense lobbying of the Government by both sides of industry has worsened relations between them. The CBI has accused the unions of being a barrier to public-sector reforms, and says they cannot speak on behalf of employees because only a small proportion of private-sector workers belong to a union.

Known as the Multinational Chairmen's Group, this secretive cabal loosely affiliated to the Confederation of British Industry is critical of new personal pension plan limits, changes to corporate governance, in-creased taxes and red tape. Their assault comes as former Vodafone boss Sir Chris Gent takes up the cudgels separately against Labour. "Gordon Brown is an old-style socialist who believes in tax and spend," said Gent. "Public spending has gone up UKpound 500 million or 60 percent since Labour came into office and business is having to pay for it." Gent, who has joined free market think-tank Reform, is also very worried about falling standards of education.

The meeting was originally scheduledas part of the preparations for the autumn meeting of the World Trade Organisation. That is still on the agenda but in addition the likes of Niall FitzGerald of Unilever, Sir John Bond of HSBC and Lord Browne of BP hope to bend the Prime Minister's ear about the accumulation of issues that are creating a tone of negativity and anti-business sentiment in this country. Many of Government's worst offences are not deep matters of principle but - rather shamefully in busi-ness eyes - reflect instead ministers' need to court short-term political popularity with scant appreciation for the long-term consequencesfor business or the economy-So why has the love affair soured?

Among those around the table will be the best of corporate Britain. Sir John Bond from HSBC, Britain's best performing company; Niall FitzGerald, the chairman of Unilever; Lord Blyth, chairman of Diageo; and his counterpart at Glaxo Smith Kline, Sir Christopher Hogg. Lord Browne, chief executive of BP, will be there and is expected to be joined by representatives of Vodafone, Shell, Astra Zeneca, Rio Tinto and British American Tobacco. On the agenda is "international business and trade".

These goliaths of the City are the leading lights of a cabal called the Multinational Chairmens' Group. Little is known of this low-key alliance, but it is nonetheless highly influential. What its members will tell Blair is likely to make him shift just as uncomfortably as he did last Thursday in response to Lord Hutton's ques-tions.
They will unveil a pointed and devastating charge sheet. It will centre around why big business has run out of patience with Labour policies and the government attitude in general.
Gordon Brown, the chancellor, Blair and ministers have grown accustomed to business turning against them. Numerous attacks over red tape and the burden of regulations have developed a rubber quality and just seem to bounce off the accused. The complaints have mainly come from small and medium-sized firms that are angry about the extra taxes that have come their way.
This is different. For the first time, the big business guns have been turned on Labour and specifically Blair and Brown.
So what has tipped them over the edge? And what will be the consequences of the showdown if the prime minister does not respond? Business leaders are warning they're not bluffing.
The very real scenario he is facing is of an industrial and corporate Britain without many of the huge multinational players. The spectre of Britain being an outpost rather than the nub of a company's business - where its research and development centres would be and associated industries would spring up - is haunt-ing Blair.
While there will be no overnight shift of operations away from Britain, the picture being painted is of big multinational companies becoming so fed up that they drift away.
Last week HSBC responded to a comment in these pages that it was considering moving from its Lon-don headquarters. It denied an imminent move was planned. But a senior bank spokesman added: "As part of its stewardship of shareholders' interests, the board does consider at regular intervals the optimum loca-tion for HSBC to be based. It takes into account the overall business climate, the fiscal regime, regulatory standards and a number of other considerations."
As one source who will be at the Downing Street meeting says: "There is a very real chance that we will wake up in five years and find that the big head offices are not really that at all - they are just nominal places. The real business will be driven from elsewhere."
The group will detail a number of key points. They range from concerns over specific issues to broader complaints about the constraints on doing business in Britain today.
NEW PENSION PLANS that will cap personal funds at Pounds 1.4m are a particular worry. The change is due in 2005, unless lobbying by business groups pays off. The move is billed as a "super-tax" on execu-tives.
Under the rules, pensioners collecting more than Pounds 70,000 a year would be subject to an effective tax rate of 60%.
The chairmen argue that for British firms to attract and keep the best employees they need to be able to pay them well and provide attractive pension plans. At present, companies have the same schemes for all staff, from the lowest clerk to the highest executive.
They will also suggest that Treasury figures about how many people this will affect are underestimates; many more could be hit than the 5,000 often mooted.
As a result, companies are being forced to look at ways to provide other incentives, including separate pensions or an increase in basic salary.
One of the broad problems suffered by these multinationals is their relationship, or lack of one, with the Inland Revenue. They believe there should be more dialogue, so that when companies devise new products or arrangements, the Revenue can advise about how they will be treated. At present, there is no assistance given.
One businessman says: "In most other countries, when business needs guidance, it is there and avail-able. We find that there is no meaningful dialogue with the Revenue, and that makes life very difficult."
The second point on the charge sheet concerns changes to corporate governance.
Business believes that instead of leading to a tightening of the codes that everyone could agree with, the debate has turned into a battle with the government that has spiralled out of control.
HSBC in particular is concerned about this.
Although the proposals by Derek Higgs, the former investment banker, have been watered down, there is still great unease over the plans. The main complaint is that they will weaken the role played by the chair-men of big companies.
The third point will also concern many voters across the country: tax. While middle Britain is waking up to the fact that Labour has turned into a tax-and-spend party, business realises it is going to have to pick up more of the tab for increased spending on public services. It is not that these companies resent the spending on public services, just that it is being spent in an inefficient way.
The Adam Smith Institute, the free-market think-tank, has just concluded that the tax burden in Britain is rising faster than any other European country. It says that this tax year people had to work until July2 before they had paid off the taxman.
Madsen Pirie, the institute's president, commented: "Britain used to be an attractive place for people to invest and do business, but punitive taxes are changing all that. This will have an impact on investment and therefore job creation."
The fourth point relates to Treasury plans to shake up the corporation-tax rules.
Concerns have been raised, particularly over the issue of the abolition of tax relief on assets such as plant and machinery through capital allowances. Relief would instead be based on accounting depreciation, which could hit company cashflows.
There is also a consultation over proposals that would have stopped non domiciled people from escap-ing paying tax on assets kept or earned overseas. The likely result is that there will be a five-year limit on how long they can avoid it.
However, big business believes this will hinder its attempts to secure management talent.
In what amounts to its fifth line of attack, the group will argue that multinational companies employ a lot of "non-doms" and that there needs to be a flexible attitude as far as the length of their stay is concerned. Some will need and want to stay for 10 years.
Brown believes his proposals could raise Pounds 5 billion a year.
Having suffered a broadside over a range of business- specific issues, the prime minister and his advis-ers are unlikely to find any respite. Instead, the discussion will turn to key infrastructure problems that are hampering the multinationals.
Transport is a key failing. Again, like the tax issue, this point will resonate with the public. It is simple one; business cannot move its goods and services around. A crumbling rail network and a creaking motor-way system are admittedly age-old problems. But business leaders are angry that Labour's attempts to do something about it have failed so miserably.
A RECENT Business Week survey found that British companies were dominating the European best performers league. Of the top 50 companies, 17 were British and six were in the top 10. HBOS was top of the pile.
The magazine said the secret of that success was that "British companies operate in a freer environ-ment than many of their continental competitors. They do not suffer from the same labour restrictions, heavy social-security burden and other structural impediments".
However, the chairmen who will confront Blair on Tuesday believe that environment is being eroded to the point of collapse. Pirie thinks Labour and business are on the brink of a permanent break-up. He is also certain where the blame lies - No11 Downing Street.
He says: "Businessmen were prepared to give Labour the benefit of the doubt because they were prom-ised fiscal stability and a low-tax environment. They have now had their eyes opened. They are, in effect, reaching for the phone to call their lawyers; they will be in the divorce courts soon."
The man who built up a small mobile-phone firm into Britain's biggest company has certainly grown ex-asperated with Labour. Sir Christopher Gent, who recently left as chief executive of Vodafone, argues in his column in today's News section that the drive to put billions into public services without reform will have seri-ous consequences.
He argues: "We compete in a global marketplace. Ultimately our growth will depend on improving pro-ductivity, which is alarmingly poor by international standards."
He believes much of the extra money is being dissipated in inflationary public-sector wage rises and employing unproductive layers of supervision.
Vodafone is the sort of modern enterprise Labour loves to be associated with, but the landscape of six years ago when FTSE executives were tripping over themselves to shake Blair's hand is no more. They are now bringing lists of damning indictments.

Tobacco smuggling

The Guardian has reported that the group was the means for British American Tobacco to prise open a meeting with Stephen Byers over the issue of smuggling:

A few days later, however, everything changed. Mr Broughton was able to go over Mr Byers' head, as a member of a shadowy group of privileged lobbyists - the "multinational chairman's group", whose members include BP, Shell, the drinks firm Diageo, Unilever, and Vodafone.

Mr Broughton was on the shortlist of those invited to eat bacon and eggs with the prime minister in the Downing Street stateroom overlooking the rose garden.

Mr Byers, too, had been summoned to the breakfast table by Mr Blair on March 14. The company chairman seized the opportunity, button-holing the minister who had been avoiding him. After shaking hands in No 10, Mr Byers was left with no alternative but to change his tune. "In the margins of that breakfast briefing," as an official note records, "the secretary of state agreed to [a] meeting".

That afternoon, BAT's lobbyists rang the department in triumph: "Mr Broughton has secured a meeting with the secretary of state".

Mr Millson later boasted : "It was said we have been very successful in getting the one-to-one meeting with Byers ... There are few companies that have achieved this."

"Dear Martin", Mr Byers wrote back, in warmer nomenclature than before. He apologised for the "error" in redirecting his earlier letter.

The secretary of state had been pressured into a private meeting with a firm into which he was trying to order an official inquiry. By contrast, ASH, the anti-smoking campaigners, say they asked for a similar meeting with Mr Byers, and were refused.

Mr Broughton followed up with intensive lobbying of No 10, sending Mr Blair a long letter demanding that he cut taxes on cigarettes, and hinting that smuggling would continue unabated into Britain if he did not cooperate: "The chosen tax policy contains within it the seeds of its own destruction."

In April, he told BAT shareholders at the annual general meeting: "There is really no need for a DTI investigation."

Whitehall refuses to release the minutes of the subsequent meeting with Mr Byers. But we obtained BAT's version from their archive, which they have been forced to disclose in settlement of a US lawsuit.

Pensions

As reported in the Guardian, after a two-year battle over freedom of information Downing Street has eventually disclosed the prime ministerial documents revealing that the executives of the Multinational Chairman's Group "outmanoeuvred Gordon Brown, then chancellor, to shield "fat cat" pensions from his proposals to tax them more heavily; wanted Tony Blair, then prime minister, to lobby George Bush to treat corporations more favourably in return for supporting the invasion of Iraq; and lobbied for less "burdensome" red tape so multinational corporations would continue basing themselves in Britain."

Concerning the pension tax it is mentioned that:

Originally Brown proposed a 60% tax on pension pots above £1.4m. The Treasury had estimated the new tax would hit only 5,000 wealthy people, although others argued many more would be affected.

Seemingly impervious to the business arguments, Brown was refusing to water down his proposals. So nine businessmen in the group sought to go over the chancellor's head at one of the meetings with Blair on September 2 2003. [...]

The lobbying, allied with protests from other business groups, forced Brown to rethink. Within a few months, he had loosened the proposed cap on their pension pots so that more of their money would escape the tax net. The extra tax will only be payable on pension savings over £1.8m, not the originally proposed £1.4m, and will not come in until 2010.

He delayed the start date of the new regime to give the rich more time to re-arrange their finances. He also reduced the tax rate from 60% to 55%. The super-rich can thus shelter an extra £400,000 from the taxman - at Brown's original proposed 60% tax, that sum would have incurred a £240,000 tax bill.

People

Lord John Browne (BP) | Arun Sarin (Vodafone) | Sir John Bond (HSBC) | Sir Christopher Hogg (GlaxoSmithKline) | Niall Fitzgerald (Unilever)

Resources

Multinational Chairman's Group