McDonnell has revealed Labour’s plans to “rewrite the economy”, moving away from a system that the shadow chancellor says over-emphasises shareholders.
The central premise of his argument is against excessive “short-termism and corporate greed”, which he directly connects to recent high-profile failures at Carillion, BHS and Thomas Cook.
At the largest companies, McDonnell said, there is an “unfettered pursuit of profit maximisation” to the detriment of other, longer-term goals. To tackle this, Labour would introduce regulatory measures that would in effect overhaul the existing system.
“Labour will establish a new statutory body to conduct audits. Its purpose will be to conduct real-time audits of banks, building societies, credit unions, insurers and major investment firms not be dependent on fees from client companies,” he said.
The Big Four, he stressed, will be prevented from “acting as a cartel”.
He argued that the four firms are so dominant in the market that auditors are unable to conduct genuinely independent and “robust” audits.
He would split the audit business from other services within the firms – an echo of recommendations made earlier this year by the Competition and Markets Authority – and also force audit tenders to be publicly available.
All companies would also be held accountable on their environmental footprint. Those not taking adequate steps toward decarbonisation, McDonnell said, “should be de-listed from the London Stock Exchange”.
Firms would be obliged to provide “socially useful information” about their activities – this would include offshore links, regulatory action, and profit from practices deemed unfair.
Commenting on McDonnell’s speech, ICAEW chief executive Michael Izza said, “We agree the audit market needs to change, and so we’ve been engaging in reviews of the sector to call for more competition, stronger regulation, higher ethical standards and, most importantly, improved audit quality.
“Reform of audit is already underway and we want the next government to develop a package of measures to deliver meaningful change in a way that is proportionate and practical given the global environment in which the UK operates. We will continue to work constructively with all parties to ensure public trust in audit is restored,” he added.
Labour also plans to introduce pay caps, which would connect the salary of the highest- and lowest-earners. By introducing a pay ratio of 20:1, McDonnell said, a chief executive whose lowest paid employee was on the national minimum wage would earn around £350,000.
In 2017, a FTSE 100 chief executive earned around 150 times more than the average salary of one of their employees. McDonnell said that the disparity in pay is “extreme to the point of … obscene”.
Labour would address bonus packages and the Long Term Incentive Plans offered to executives, which often result in a steep boost to their pay.
“If someone gave you £1 every ten seconds, it would take you more than 300 years to become a billionaire. Someone on the national minimum wage would have to work for 69,000 years to become a billionaire. We have 150 billionaires in this country,” McDonnell said.
Debating prime minister Boris Johnson yesterday, Labour leader Jeremy Corbyn said, “We are a society of billionaires and the very poor, neither of which are right.”