The Conservative Party used to look after big, nationwide businesses. Now it serves a finance industry based in a few small areas of the capital.
What is unfortunately not mentioned is that this system is true for most of the EU and the UK is not an exception, but the rule. Government is sold to the highest bidder.
Frances Coppola is the author of the Coppola Comment finance and economics blog, which is a regular feature on the Financial Times’ Alphaville blog and has been cited in The Economist, the Wall Street Journal, The New York Times and The Guardian. Coppola is also Associate Editor at the online magazine Pieria and a frequent commentator on financial matters for the BBC.
Cross-posted from Open Democracy
Last Friday, openDemocracy revealed that a secretive group of business leaders was bankrolling the Conservative Party to the tune of over £130 million. The report paints a disturbing picture of donors being treated to dinners, lunches and drinks receptions, rewarded with knighthoods and peerages, and given privileged access to senior ministers. The businesses that these wealthy Tory supporters lead come disproportionately from one industry: finance. Contributions from this sector amount to some £50 million. Of this, £18 million comes from just five very wealthy hedge-fund backers.
The Conservatives have long had a close relationship with big business, just as the Labour Party has long been allied to workers’ unions. Large corporations donate to the Tories on the understanding that in government the party will look after their interests. Those interests don’t necessarily coincide with the interests of the companies’ workers; but then the workers’ unions have traditionally donated to Labour, which in turn represented their interests.
Although, there is a clear class divide between the two parties, in the past both were broadly based, drawing their funding from the management and the workers of a wide range of industries across the whole country. In the UK’s two-party system, the representatives of big business and big unions counterbalanced each other.
But now the profile of the Conservative Party’s business donors has become very lopsided. The range of businesses that donate is shrinking while donors from finance dominate.
Hedge Fund City
This reflects the financialisation of the UK economy. Finance is the Conservative Party’s largest source of funds because it has become by far the UK’s biggest industry – but an industry that operates mostly in one corner of England. The City of London is the beating heart of international finance, while Canary Wharf is home for big banks and other financial institutions. And Mayfair has become Hedge Fund City.
No doubt Conservatives will argue that it is perfectly OK for the UK’s most successful industry to be the principal source of funds for their party. And if the money were coming from big UK financial institutions, I might agree. The big UK banks employ thousands of people and provide loans, deposit facilities and payments services to millions. True, they nearly crashed the economy in 2008, but at least they are representative of the country. Similarly, big asset managers and insurance companies manage the pension savings of millions of people.
But big financial institutions like these are now almost absent from the list of significant donors. Taking their place are donors from hedge funds.
Hedge funds are investment firms that pool capital from institutional and personal investors and invest it in a variety of assets, including highly risky ones. ‘Hedge’ refers to these firms’ practice of protecting themselves against loss by pairing ‘long’ and ‘short positions’.
In a long position, an investor buys assets in the expectation that their price will go up, so they can sell them later at a profit. In a short position, on the other hand, the investor sells assets whose price they expect to go down, enabling them to buy them back later and keep the difference in price. ‘Shorting’ assets and taking risky positions is part of hedge funds’ business model.
Hedge funds are not representative of the UK economy: compared with big financial institutions, they have small asset bases and they employ few people. And they are all too often run by people with extremely right-wing, and sometimes downright reactionary, views. Among the hedge-fund donors to the Conservative Party are Michael Hintze, who also funds the Global Warming Policy Foundation, which lobbies against climate science, and George Farmer, a funder of the ultra-conservative Christian youth group Turning Point.
On the eve of the 2016 EU referendum, one hedge-fund manager, Crispin Odey, earned a substantial amount of money – and enduring notoriety – by shorting sterling. Since then, there have been continual rumours that hedge-fund backers are funding the Conservatives in order to influence policy in the direction of a ‘no-deal’ Brexit, so that they can clean up from the inevitable sterling crash. In September, Byline Times alleged that hedge funds had funded Boris Johnson’s leadership campaign for exactly this purpose. Shorts against sterling did indeed increase as Johnson insisted that the UK would leave the EU on 31 October “do or die”; but they were duly unwound – with losses – when Johnson was forced to ask for an extension.
Wealthy donors from hedge funds clearly do have privileged access to Conservative ministers. And hedge funds do make money by placing risky bets on future events. For a hedge-fund manager, shorting sterling if no-deal Brexit looked likely would be a no-brainer. But I don’t see substantial donations from hedge-fund owners as an orchestrated attempt to make money from Brexit in the short term. Rather – as with all business donors – their aim is to make the UK an attractive place for their kind of business. That means light (or preferably no) regulation and low (or preferably no) taxes.
The need to please hedge-fund donors might explain the Conservative Party’s hardening approach to Brexit. Membership of the EU, or alignment with it, wouldn’t preclude the UK becoming the low-tax paradise of which hedge-fund owners dream. But it could prevent the country scrapping regulation on the scale that they would like to see. Hedge-fund managers Crispin Odey and Paul Marshall were prominent signatories of a Brexit-supporting letter released by the Vote Leave campaign just before the 2016 referendum, in which was a thinly disguised call for significantly lighter regulation of the UK’s financial sector. “We worry that the EU’s approach to regulation now poses a genuine threat to our financial services industry and to the competitiveness of the City of London,” the letter said.
The Conservative Party was unable to agree to Theresa May’s Brexit deal because it would have kept the UK aligned to the EU’s regulatory regime. Now it has ditched both May and her deal. Johnson’s deal would see the UK diverge from EU regulatory standards. How this is supposed to be compatible with a free trade agreement is unclear – but it will undoubtedly please the anti-regulation donors.
Desire to please hedge-fund donors might also explain the barely concealed ambition of some senior Tories to turn the UK into an unregulated offshore tax haven after Brexit. The prospect of ‘Cayman-On-Thames’ could attract donations from hedge-fund owners, though it might drive away mainstream businesses, especially the big financial institutions that rely on a close relationship with the EU.
More broadly, the policy agenda of hedge-fund owners and right-wing Tories is strikingly similar: tax cuts for the rich, dismantling of regulations and shredding of the welfare state. Johnson has temporarily backtracked on his proposals for substantial tax cuts for the rich because he needs to win an election and this is emphatically not a vote winner. But they will no doubt reappear if the Conservatives win an overall majority.
The growing prominence of hedge-fund donors in Conservative funding reflects the party’s shift to the right and the narrowing of its traditional funding base. Whether this shift is due to extreme right-wing donors influencing party policy, or an increasingly right-wing party attracting like-minded donors, is unclear. But the party is less and less representative not only of the UK population, but even of the businesses that have traditionally supported it. The consequences for democracy in the UK could be severe.