A revised version of a major section of Theresa May’s speech to the Scottish Tory conference – 3 March 2017

Theresa May’s speech to Tory conference, on SNPConservatives Record

Because for too long a feeble and incompetent ScottishLabour opposition did nothing to scrutinise the SNPConservatives for their failures. An SNP Conservative Government interested only in stoking-up endless constitutional grievance and furthering their obsession with independencewithdrawal from the EU, at the expense of UKScottish public services like the NHS and education, was given a free pass by Labour.

The SNPConservatives Government demands further powers for the UKScottish Parliament, but fails to pass powers on to local people in the UKScotland’s villages, towns and cities.

The simple truth is their policies are not in the best interests of the UKScotland, but in the political interest of the SNPConservatives. A party resolutely focused on just one thing: withdrawal from the EUindependence. For them, it is not about doing the right thing. The SNPConservatives play politics as though it were a game. But politics is not a game and the management of devolved public services in UKScotland is too important to be neglected.

People in the UKScotland deserve a PrimeFirst Minister who is focused on their priorities – raising standards in education, taking care of the health service, reforming criminal justice, helping the economy prosper, improving people’s lives. Instead, they have an SNP Conservative Government obsessed with its own priority of withdrawal from the EUindependence, using the mechanisms of national devolvedgovernment to further its political aims and all the while neglecting and mismanaging public services in the UKScotland. The SNPConservatives have been allowed to get away with it for too long. But not any more.

Now, in [who?]Ruth Davidson, the UKScotland has a fighter who will stand up to the SNPConservative establishment, in the interests of the UKScottish people, and provide a real alternative to the SNPConservatives.

But as well as taking on the SNPConservatives for their failures in office, we have another important job. When I stood outside Downing Street on the day I became Prime Minister, I reminded people in that the full title of our Party is the Conservative and Unionist Party. And that word ‘unionist’ is very important to me. My first visit as Prime Minister was here to Scotland. I wanted to make clear that strengthening and sustaining the bonds that unite us is a personal priority for me.

I am confident about the future of the European Union our United Kingdomand optimistic about what we can achieve together as a the member state of the European Unioncountry. The fundamental strengths of the our European Union, and the benefits it brings to all of its constituent parts, are clear. But we all know that the SNPConservatives will never stop twisting the truth and distorting reality in their effort to denigrate our the European Union United Kingdomand further their obsession of withdrawal from the EUindependence.

It is their single purpose in political life.

We need to be equally determined to ensure that the truth about the European Union our United Kingdomis heard loudly and clearly.

As Britain leaves the European Union and we forge a new role for ourselves in the world, removed from the strength and stability of the European our Union, our lack of membership will become even more important.

We must take this opportunity to bring the our United Kingdom closer to the European Uniongether. Because the European Union which we all care about is not simply a constitutional artefact. It is a union of people, affections and loyalties. It is characterised by sharing together as European a countriesy the challenges which we all face, and freely pooling the resources we have to tackle them.

The existence of the European our Union rests on some simple but powerful principles: solidarity, unity, family, how we became a union and why we prosper together.

The European Union Our United Kingdomhas evolved over time and has a proud history. Together we form the world’s greatest family of nations. But the real story of the European our Union is not to be found in Treaties or Conventions Acts of Parliament. It is written in our collective achievements, both at home and in the world. Together, we led the world into the industrial age.

From the Derbyshire dales, to the south Wales Valleys and the workshops of Clydeside, British industrialists, inventors and workers charted the course to modernity and made the United Kingdom the world’s engine-room. The Union enabled the social, scientific and economic developments which powered our collective achievement. Bringing people and communities closer together allowed new connections to be made. The steam engine; perfected in the 1790s by a partnership between an engineer from Greenock, James Watt, and a manufacturer from Birmingham, Matthew Boulton. The Menai Straits; spanned in the 1820s by an engineer from Dumfriesshire, Thomas Telford.

Collective achievement has been the story of the European our Union ever since.

Penicillin; discovered in 1928 by a Scottish doctor, Alexander Fleming, working in a London hospital, St Mary’s. The Harry Potter books, which have sold over 500 million copies, were begun in a café in Edinburgh by an author from Gloucestershire.

And that cCo-operation – economic, social, and cultural – has been the bedrock of the our success as a European Union of nations and people. Together, we make up the world’s second fifth largest economy, despite accounting for less than 71 per cent of the world’s population. Together, we fought against and defeated tyranny, keeping peace and prosperity in a formed troubled continent for over 70 years. Ours is not a marriage of convenience, or a fair-weather friendship, but a true and enduring Union, tested in adversity and found to be true.

And the great institutions which we have built together, the pillars of our national life, are the result of common endeavour. The National Health Service, the BBC, our armed forces, our Parliamentary democracy, our constitutional monarchy, our commitment to the rule of law, our respect for fundamental human rights. All have been admired and imitated around the world, and all were created here as a consequence of our common life together.

These achievements are the fruits of the European our Union. They are the signs which signify its deep and fundamental strengths. An economy that works for the whole Europe.UK We should never be shy of making that positive case for the European Union, because logic and facts are on our side.

Take the economic arguments. One of the driving forces behind the European Union’s creation was the remorseless logic that greater economic strength and security come from being united. Not the transient and shifting benefits of international alliance, but the fundamental strength of being one people. Those enduring economic strengths are obvious. Our wholly integrated single domesticmarket for businesses means no barriers to trade within our borders.

That has always been of immense value to firms here in the UKScotland. The SNPConservatives point out the importance of the European market to UKScottish businesses. I agree – it is important. That’s why I am determined to get the best possible access to it for UKScottish firms, as I am for Welsh, English and Northern Irish firms. But what the SNPConservatives don’t point out is that the EU single oUK domesticmarket UK accounts for 44% of UK exports in goods and services and 53% of the UK’s imports (in 2015)is worth four times more to Scottish firms. In fact, the EU comes third after the rest of the UK, and the rest of the world as a market for Scottish goods. And yet the SNP Conservatives propose withdrawal from the EU Scottishindependence, which would wrench the UK Scotland out of its biggest market. They think withdrawal from the EU independence is the answer to every question in every circumstance, regardless of fact and reality. It simply does not add up and we should never stop saying so. And the UK is not just a market place. The financial stability of a strong shared currency and central bank underpins all sectors our economy, across all four nations of the UK. The broad shoulders of the world’s fifth-largest economy provide enviable security for businesses and workers alike. Ten years ago, banks headquartered in Edinburgh and London, which employ tens of thousands of people and look after the savings of millions, were rescued by the UK Treasury. Action that was only possible because of the size and strength of the British economy. In the oil and gas sector – a vital industry on our east coast, from Aberdeen to Lowestoft – the broad shoulders of our wider economy have allowed the UK Government to take unprecedented action to support the sector following the decline in the international oil price. And public spending here in Scotland has been protected, even as North Sea tax receipts have dwindled to nothing. Time and again the benefits of the European Union – of doing together, collectively, what would be impossible to do apart – are clear. Indeed the economic case for the European Union has never been stronger. There is no economic case for the United Kingdom breaking away from upthe European Union United Kingdom, or of loosening the ties which bind us together But the economics are only part of the story.

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All warfare is based on deception

Bamboo_Book_binding

Bamboo book of The Art of War – title and contents page

The title to this post is a proverb that can trace its roots to the Chinese book, The Art of War, attributed to Sun Tzu. It comes from the passage at verse 18 in Chapter 1:

兵者,詭道也。故能而示之不能,用而示之不用,近而示之遠,遠而示之近

(All warfare is based on deception. Hence, when we are able to attack, we must seem unable; when using our forces, we must appear inactive; when we are near, we must make the enemy believe we are far away; when far away, we must make him believe we are near.)

It would seem, following the report by the Policy Exchange titled The Fog or War, that deception includes convincing politicians that military action is being impeded by actual or potential legal oversight.

I have written before on combat immunity, one of the topics discussed in The Fog of War, following the High Court judgment in Smith and others v Ministry of Defence (Civil liability in military uniform) and the Supreme Court ruling in the same case (Combat immunity takes a hit). I concluded that I cannot see any justification for giving the military a broad exemption from liability for negligence claims. As the Policy Exchange itself points out, there is a mechanism for the Secretary of State to give the military immunity where required in the national interest, subject to Parliamentary scrutiny (section 2 of the Crown Proceedings (Armed Forces) Act 1987). I summarised my view in a radio package by Voice of Russia on the Policy Exchange report – listen here.

However, The Fog of War also addresses the question of the application of human rights law to the battlefield. It suggests a scenario where battlefield commanders at all levels become inhibited from acting as a result of their concern about subsequent legal scrutiny of their actions. Similarly, the impact of health and safety legislation, despite the many exemptions that apply to the military, is discussed as being a burden. Much is made of the evidence given before a House of Commons Select Committee of “over-compliance” by the MoD with health and safety regulations. The report also details the nature (and exemptions) included in the Corporate Manslaughter and Corporate Homicide Act 2007. We are being led to believe that as the Supreme Court  in Smith v MoD restricted what were ‘military activities’ for the purposes of what constitutes combat immunity in negligence actions, ‘judicial mission creep’ will bring about paralysis on the battlefield. Commanders under fire will think more about potential law suits than the task at hand.

This all suggests a massive lack of training and understanding by the military of their obligations and duties under the law. I am tempted to be tribal and say this must be an army and navy problem. I was regularly given training during my time in the RAF on what was then called the Green Card (rules of engagement when armed in the UK) and was also required at one point to learn the Yellow Card (rules of engagement when in Northern Ireland). As an officer in charge of armed guards, I also had to give reminders to guards about to go on duty on their rules of engagement. None of this was too difficult.

Similarly, I don’t see that with proper training, the application of human rights and the law of armed conflict should hinder operations. To give the military some implied discretion over the relative importance of human rights and rules such as those under the Geneva Convention in tactical situations to me seems a dangerously retrograde step. Does anyone think that Marine A was not guilty of murder?

I was also the first officer trained in health and safety to be posted to a joint service unit in the Falklands (JCUFI). As might be imagined, this required a lot of remedial work in writing up safety policies and procedures, as well as training the non-RAF elements (the RAF at that time seemed far more advanced in health and safety compliance, possibly because in many ways the RAF is essentially an engineering and logistics operation). I came across a lot of initial resistance from those who had never considered or been trained in health and safety best practice, with similar complaints to those listed in Fog of War that to be health and safety compliant was to reduce military capability and effectiveness. However, careful explanation of ALARP principles (in practice, the application of common sense) and the realisation that ALARP practices usually led to more efficient procedures and outcomes usually convinced personnel (and superiors).

What I find particularly alarming about The Fog of War, however, is the argument that as the British military is always under-resourced, it must rely on risk-taking:

In comparison with its rivals, the UK has traditionally maintained armed forces at levels which might easily seem inadequate for the tasks which they are expected to face. They have compensated by training and encouraging leaders at all levels to innovate. Historically, this has allowed the UK to maintain a smaller force than its rivals – and still more than match them on operations. In the 2011 version of the military’s professional instructions, the British Army states that: “a warfighting ethos, as distinct from a purely professional one, is absolutely fundamental to all those in the armed forces”. This is not an arbitrary distinction. As the recently retired Commander of Force Development and Training, Lieutenant General Sir Paul Newton puts it: “The reason we make this particularly British distinction is that our armed forces are small; they do not enjoy unlimited resources; and we tend to commit the military only as a last resort so wresting control away from the adversary requires agility; confidence can be a life or death issue. As the doctrine states, ‘this approach requires … decentralised command,
freedom and speed of action and initiative, but which is responsive to superior direction when a subordinate overreaches himself ’.” Small militaries must be creative and take calculated risks if they are to prevail. But this initiative, central to the British way of warfare, risks being undermined by juridically-inspired caution.

Britain’s forces have a reputation for agility because they have traditionally accepted risk. Being willing to deploy with what they have – both in terms of equipment and training – and then adjust according to requirement on arrival has given the UK a speed of reaction that few others can match.

To anyone who has read any critical analyses of the conduct of the British armed forces in recent engagements, these passages are particularly dispiriting. Whilst ‘can do’ and ‘cracking on’ attitudes can be commendable, even military training videos show that an excess of these attitudes can lead to trouble.They also encourage politicians to act too quickly and, in my view, be too ready to turn to the military option.

It’s the lack of critical thinking that is worrying. The authors of The Fog of War do not seem to appreciate that recent military actions in Iraq and Afghanistan, where there has been the most alleged judicial creep, should at best be described as police actions. These were not and should not be seen as wars, just as the prevention of terrorism should never be catagorised as the almost oxymoronic ‘war on terror’.

An aggressive, warfighting ethos that is risk-taking and not risk-averse is not always the best approach. Such a culture only breeds high ranking officers who are incapable of saying “No” to their politician task-masters. I particularly recommend the book Losing Small Wars for the analysis of Frank Ledwidge on the damaging effects of this culture, particularly for police and anti-insurgent actions.

Party political funding – a personal view

Donations trend to political parties since 2005 (© The Electoral Commission, accessed from http://www.electoralcommission.org.uk July 2013)

The political battle over lobbying, undue influence and party political funding is certain to intensify in the run up to the 2015 General Election. The skirmish over the influence of Unison over the Labour Party, following allegations of candidate selection rigging in the Falkirk constituency, or revelations that over half of Conservative Party donations come from the City of London in the week when it appeared watchdog powers were being watered down in the banking reform bill, are merely the most recent signs.

It appears that we have not made any progress from the 2005 General Election, where the question of loans to political parties to fund their general election campaigns led to Sir Hayden Phillips chairing a review of party funding from May 2006. The final Phillips Inquiry Report, ‘Strengthening Democracy: Fair and Sustainable Funding for Political Parties‘, was published on 15 March 2007, with all party talks to agree on the way forward starting on 15 May 2007. Predictably, the talks were suspended in the absence of any agreement on implementation of the report in October 2007.

Key recommendation of the Phillips Inquiry Report included:

  • political donations cap of £50,000
  • spending limits of £150 million per party per Westminster election cycle
  • £100,000 spending limit for by-elections
  • public funding of political parties to match donations made by persons on the electoral register, to a limit of £10 million per year
  • public funding of political parties at a rate of 40p per vote at a general election, 20p per vote at Scottish Parliament, Welsh Assembly and European Parliament elections

In the absence of any cross-party consensus, the Labour Government’s Ministry of Justice published a White Paper, ‘Party finance and expenditure in the United Kingdom‘ in June 2008. This tinkered with the Phillips Inquiry recommendations, but ultimately did not go further than being mere proposals. The more interesting suggestions included:

  • retaining an annual limit on spending in addition to a limit per parliamentary cycle, with discussion that this should be around £15m per year
  • strict controls on third party campaign spending (with a modest cap proposed)
  • no limit on donations until controls on third party spending agreed

The more recent Commons Library Note dated 25 June 2013 has reviewed the latest position on party political funding. Its finding on progress can easily be summarised: there is no progress. This is despite the Coalition Agreement including:

We will also pursue a detailed agreement on limiting donations and reforming party funding in order to remove big money from politics.

In my mind there needs to be a link established between party membership and party political funding. It is clear that since 1950, party membership of the main parties has been in steady decline, as reported by a Commons Library Note dated 3 December 2012.

Introducing public funding on a pence per vote model, as proposed by the Phillips Inquiry, merely rewards the two or three main political parties in our current first-past-the-post (FPTP) system. Why should a smaller party, maybe with no representation in Westminster, be penalised as a result of the bias in the FPTP system? Funding linked to membership seems to be a much more fair way of progressing.

Rather than address funding directly, I would consider controlling spending. As the Phillips Inquiry Report and White Paper discuss, some forms of canvassing and campaigning are very low cost, such as open public meetings and hustings. I would propose that party political spending be limited by reference to a spending limit per registered party member, with a political donations cap of £50,000, as proposed by Phillips, for each Westminster election cycle.

To calculate what would be an appropriate limit per party member, I would use the current spending limits as a target figure. I considered, in these austere times, that the current £20 million cap on election sending be reduced to £15 million, as proposed in the 2008 White Paper, and that this be used as the target to limit spending in a Westminster (5 year) cycle, as recommended by Phillips, to £75 million (ie half of the Phillips level).

On the basis that a strong political party in the UK could be expected to have at least 150,000 members, I would suggest a spending limit of £500 per member per cycle. These would need to be full members, so for affiliated trade unions to the Labour Party, the trade union members would need to be opted-in to be members of the Labour Party.

It might be argued that such a spending limit favours the Labour Party, on the basis that there are a large number of members of trade unions affiliated to the Labour Party. However, as explained above, these individuals would need to opt-in to membership of the Labour Party; there is no reason to suggest that all trade union members would do so. There is also no reason why this system should prejudice the Conservative Party. As the Commons Library Note sets out, at one point the Conservative Party had members in the millions. Rather than plead bias, the Conservative Party ought to address the question of its dying membership.

Who am I kidding? Whilst the ability to legislate for party political funding, as with reform of the UK voting system, lies solely in the hands of politicians with no incentive to change either system, nothing will happen.

Google, Amazon, Starbucks and Tax Avoidance

Lough Erne Ireland

Lough Erne Resort – location of G8 summit in June 2013 to discuss tax avoidance

A number of international e-commerce and other business-to-consumer businesses have been in the media spotlight recently. Google, Amazon and Starbucks executives have received the most attention in the UK, following appearances by them to give oral evidence to the House of Commons Public Accounts Committee (PAC) investigation into tax avoidance. Google was asked to return to the PAC to clarify issues concerning its taxable status in the UK.

These three companies appear not to have paid similar amounts of corporation tax to those of other UK-based companies with a similar turnover, even though they appear highly profitable. This has led to criticism of their ethics as well as to the tax system itself that enables them to appear to get away with paying little or no tax.

Starbucks is reported not to have paid much tax as its UK subsidiary is not, on paper, a profitable company. It appears to pay significant sums for its supplies and branding rights to other companies in the Starbucks’ group of companies. This raises the issue of the real value of these transactions and what is known as transfer pricing. Starbucks has weathered the PR storm by ‘volunteering’ to pay £20 million in corporation tax for 2013/2014.

Here, I look at the situation where business is said to be conducted by foreign companies without a taxable presence (or, in tax jargon, a permanent establishment) in the UK. Google, in particular, is quite up front about its tax affairs, stating that all of its UK business is concluded by its Irish company, which pays 12.5% corporation tax in Ireland instead of the UK’s 20%+ tax rate.

The reason that these tax arrangements are legal is that for many jurisdictions’ tax laws, the mere carrying out of certain activities by representatives of a foreign company in a jurisdiction does not created a ‘permanent establishment’ for the foreign company in that jurisdiction. It is only companies with a permanent establishment that are taxable.

‘Permanent establishment’ is defined in the UK by Chapter 2 of Part 24 of the Corporation Taxes Act 2010. In summary, if the activities of a foreign company carried out in the UK by its employees or agents are only for preparatory or auxiliary purposes, then no place of permanent establishment is created. This closely follows the OECD Model Tax Convention on Income and on Capital 2010, Article 5. If the place of management, ie where the companies’ transactions are concluded, is outside of the UK, then no UK corporation tax is payable. As has been demonstrated by the Google case, this appears to be a surprise to many, despite this being long established international tax law and practice.

The obvious answer is not to vilify the executives of companies, who naturally seek legitimate ways to reduce their tax burden, but to change the relevant tax laws.

If I were to do this, I’d go for the definition of ‘permanent establishment’. I suggest that if a significant proportion (say 75%) of the total costs of sale or delivery of a service are physically incurred in a the same jurisdiction where the goods or services are delivered, then despite the fact that the relevant company’s HQ (place of management) may be elsewhere, the company should be deemed to have a permanent establishment in that jurisdiction.

Secondly, I support the idea already considered by the OECD Technical Advisory Group of amending the OECD Model Tax Convention (and the definition of ‘permanent establishment’ in the Corporation Taxes Act) to include virtual permanent establishment.

The TAG suggested in its report Are the Current Treaty Rules for Taxing Business Profits Appropriate for E-Commerce?:

323. The “Virtual Fixed Place of Business PE” would create a permanent establishment when the enterprise maintains a web site on a server of another enterprise located in a jurisdiction and carries on business through that web site. The place of business is the web site, which is virtual. This alternative would effectively remove the need for the enterprise to have at its disposal tangible property or premises within the jurisdiction. It would nevertheless retain some or all of the other characteristics of a traditional PE, i.e. the need for a “place” (whether physical or electronic) within a jurisdiction having the necessary degree of permanence through which the enterprise carries on business. Thus, for example, a commercial web site, through which the enterprise conducts its business and which exists at a fixed location within a jurisdiction (i.e. on a server located within that jurisdiction) is regarded as a fixed place of business.

I would go further than the TAG and not get fixated on the idea that virtual permanent establishment be tied to the physical location of the e-commerce website server. In addition to the server location, I’d also consider that where a website was clearly targeted at consumers in a particular jurisdiction, as shown by evidence such as use of language, billing currency, local contact details or the applicable law that would apply to the consumer transaction effected by the web site, then this, too, would create a virtual permanent establishment.

Note that the TAG report referred to above was published in November 2002, following work started in 1999. Any recent outrage and questions about the ethics and morality of tax avoidance from politicians of any party must therefore be taken with a pinch of salt. It is a shame that it has only taken the worst recession the UK has suffered for a generation for these same politicians to begin to wake up to tax avoidance.

Companies and their employees

... leaving the factory!All company law students know about the case of Salomon v Salomon & Co Ltd, even though it dates from 1897. The case continues to be a leading authority for the key company law concept that companies are separate legal entities, and is an early example of shareholders avoiding any liability when a company went into insolvent liquidation. Saloman & Co Ltd had been incorporated under the Companies Act 1862, the first of many Companies Act and a consolidation of, among others, the Joint Stock Companies Act 1844.

Before the Joint Stock Companies Act 1844 companies could only be formed by an act of Parliament or Royal Charter. These pre-1844 companies were generally unlimited liability corporations. Only where there was a significant public interest were companies granted the privilege of the protection of limited liability. This was often the case for transportation (particularly railway) or utilities’ companies, where large capital investment was required and where there was likely to be substantial public benefit. However, the Limitation of Liability Act 1855 made this privilege a right for any company incorporating under the 1844 Act, where the shareholders paid up £50 share capital (approximately £5,000 in 2013 terms).

There had been wide debate about limited liability corporations, with a Royal Commission taking evidence on the issue and deciding against limited liability being introduced into any company law reform (Royal Commission on the Mercantile Law, Report 1854). However, the new coalition government of 1855, led by Lord Palmerston  appears to have rushed through the 1855 Act under the political and financial pressure of dealing with a failing and unpopular war, the Crimean (see Colin Mackie’s analysis at From Privilege to Right: Themes in the Emergence of Limited Liability). It should not be a surprise that the immediate beneficiaries of limited liability were the upper and middle classes. It was even recognised that lawyers and accountants would gain new business from advising on the use of the new limited liability structures.

Some arguments against joint stock companies with limited liability came from respected sources. In Book V of Adam Smith’s An Inquiry into the Nature and Causes of the Wealth of Nations, he makes observations that are as relevant today, with directors of FTSE100 companies arguably awarding themselves excessive remuneration whilst taking, in the case of financial institutions in particular, outrageous risks, without active shareholder control:

The trade of a joint-stock company is always managed by a court of directors. This court, indeed, is frequently subject, in many respects, to the control of a general court of proprietors. But the greater part of these proprietors seldom pretend to understand any thing of the business of the company; and when the spirit of faction happens not to prevail among them, give themselves no trouble about it, but receive contentedly such half yearly or yearly dividend as the directors think proper to make to them. This total exemption front trouble and front risk, beyond a limited sum, encourages many people to become adventurers in joint-stock companies, who would, upon no account, hazard their fortunes in any private copartnery. Such companies, therefore, commonly draw to themselves much greater stocks, than any private copartnery can boast of. The trading stock of the South Sea company at one time amounted to upwards of thirty-three millions eight hundred thousand pounds. The divided capital of the Bank of England amounts, at present, to ten millions seven hundred and eighty thousand pounds. The directors of such companies, however, being the managers rather of other people’s money than of their own, it cannot well be expected that they should watch over it with the same anxious vigilance with which the partners in a private copartnery frequently watch over their own. Like the stewards of a rich man, they are apt to consider attention to small matters as not for their master’s honour, and very easily give themselves a dispensation from having it. Negligence and profusion, therefore, must always prevail, more or less, in the management of the affairs of such a company. It is upon this account, that joint-stock companies for foreign trade have seldom been able to maintain the competition against private adventurers. They have, accordingly, very seldom succeeded without an exclusive privilege; and frequently have not succeeded with one. Without an exclusive privilege, they have commonly mismanaged the trade. With an exclusive privilege, they have both mismanaged and confined it.

This is all background. The essential point is that we have become so used to the idea of a limited company being considered to be a separate legal entity with limited liability that we have forgotten how unusual this is, and what an artificial mechanism has been created in order to encourage investment in business, and to protect investors should their investment not prove successful. It is as if we have collectively decided that the interests of the capital classes are completely paramount, with no regard for the wider social and societal interests in companies being good employers.

In my view, we have not ensured that this shareholders’ “right” to limited liability, as Colin Mackie identifies it, is balanced by adequate shareholder “responsibilities” to protect the public interest.

I remember being disappointed during one of my first readings of the Companies Act 1985 (which was the relevant law at the time) that the only statutory duty directors owed to employees, as set out at section 309, was so limited. Directors had only to “have regard to  interests of employees”, but crucially these employees had no mechanism to enforce the provision.

This continues to be the case under the current Companies Act 2006. This relatively new law is a major reform and consolidation of UK company law. It extends to 1,300 sections and 16 schedules, making it one of the longest acts of Parliament in UK history. Part of the Act put directors’ duties on a statutory footing for the first time – see Companies Act 2006, Part 10, Chapter 2. However, nowhere in these duties are employees given adequate protection. Section 172 of the Companies Act 2006 merely reiterates the “having regard to” wording used in the Companies Act 1985, but this is still subservient to the interests of the members (shareholders).

How radical would it be, in practice, if shareholders were required to recognise the benefit of being granted limited liability protection by accepting that their interests were not paramount? What if Section 172 read as follows (changes in red):

172  Duty to promote the success of the company

(1)  A director of a company must act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of

(a)   its members as a whole, and

(b)   the company’s employees.

(2)  A director of a company, must, for the purposes of subsection (1), in doing so have regard (amongst other matters) to—

(a)   the likely consequences of any decision in the long term,

(b)   the interests of the company’s employees,

(bc) the need to foster the company’s business relationships with suppliers, customers and others,

(cd) the impact of the company’s operations on the community and the environment,

(de) the desirability of the company maintaining a reputation for high standards of business conduct, and

(ef)  the need to act fairly as between members of the company and the company’s employees.

(2)  Where or to the extent that the purposes of the company consist of or include purposes other than the benefit of its members and the company’s employees, subsection (1) has effect as if the reference to promoting the success of the company for the benefit of its members and the company’s employees were to achieving those purposes.

(3)  The duty imposed by this section has effect subject to any enactment or rule of law requiring directors, in certain circumstances, to consider or act in the interests of creditors of the company.