The ongoing controversy surrounding bankers’ bonuses has made me think about how attitudes to wealth have changed in the past two to three decades.
The ongoing controversy surrounding bankers’ bonuses has made me think about how attitudes to wealth have changed in the past two to three decades.
There is no question that the Labour government under Tony Blair genuinely created the opportunity for entrepreneurs to not only make money, but keep it.
If you go back to the bad old days with tax at 60 per cent, capital gains tax at 40 per cent and no tax reliefs for investments by private individuals in small companies, you soon realise why the rich lists of the early 1980s bear no resemblance to today’s.
The 1980s rich list was dominated by “old money”, whereas today it’s filled with entrepreneurs who started out with nothing. What they did have, however, was brains, drive and an environment in which people were prepared to back them. And if they did succeed it was they – not the government – who kept the bulk of the fruits of their success.
A number of factors helped the entrepreneur, such as government deregulation. I’m thinking in terms of nationalised industries and the financial services market. If you go back 40 years, mortgages were rationed, new telephone lines took three to four months to install and there was a limit of £200 on the amount of foreign exchange that could be taken abroad. The whole business environment has changed massively.
In addition to this, there is the growth of service-based businesses and the emergence of the software and IT sectors, which have led to a shift away from the large, capital-intensive manufacturing industry. Now some would say that our shrunken manufacturing base is no cause for celebration, but I believe it has created the space for new industries. Software and IT businesses in particular require relatively little capital to start with, and this sector has probably created more multi-millionaires than any other.
Then we have venture capital. Again, if you go back 30 years, it was 3i or 3i for venture capital. Despite the trend for larger buy-outs over the past five to ten years and the controversial use of leverage, the number of new venture and development company funds that have been founded in the past 15 years is staggering.
I also think there are a greater number of business role models who inspired a new generation to start a business. The era of fat cigars, chauffeurs with peaked caps, owning racehorses and shooting game could hardly be more removed from the down-to-earth image of Bill Gates and the founders of Google. And yet they have become the icons of our age – self-made, incredibly successful and philanthropic to boot.
This has rubbed off here in the UK, and the attitudes to both Richard Branson and Philip Green are, I would suggest, one of admiration and respect for their achievements, not envy. Nor do people think of them as greedy.
Fundamentally, I don’t believe you can underestimate the importance of tax incentives in forging a new business culture, and there is no doubt that Blair’s Labour did a great job for entrepreneurs. The heady days of ten per cent capital gains tax for owner-manager businesses meant that entrepreneurs did, on the whole, stay in the UK and not migrate abroad.
Moreover, individuals investing through the Enterprise Investment Scheme and venture capital trusts (VCTs) have raised upwards of £2 billion for early-stage companies, creating thousands of jobs in the process.
Our attitude to wealth and success has evolved immeasurably over the past two decades. However, little sympathy exists for the private equity firms that we saw conducting mega-leveraged buy-outs, and even less is in reserve for those banks that have been saved by taxpayers’ money and yet still see fit to hand out giant bonuses.
I genuinely hope such excesses don’t detract from the wealth creators who should be cherished and looked after (please note, political parties) rather than subject to press violation and discrimination.
