The Guardian view on the government’s corporate reforms: entrenching neoliberalism, not ending it | Editorial

The question of what corporations are for is deeply political. In a 1970 article for the New York Times, Milton Friedman argued that the “social responsibility of business is to increase its profits”. The idea that CEOs should worry about providing good jobs was “pure and unadulterated socialism”, he wrote.

Friedman and his fellow neoliberals saw companies as vehicles for enforcing their politics. Their ideas endured: UK bosses are now paid 130 times more than average workers. Despite Andy Burnham’s pledge to end neoliberalism, a 12-week consultation recently launched by his government risks entrenching it.

The consultation was first announced as part of the Starmer government’s crusade against “red tape”. The average annual report for some businesses now runs to 98,000 words, and no doubt there are areas that could be simplified. But the consultation proposes removing vital information and presumes that company reports primarily serve shareholders, rather than other stakeholders.

Both are steps in the wrong direction. The consultation proposes scrapping information about the ratio between CEO and worker pay, removing a vital benchmark for inequality. British CEOs already earn 95% more on average than their European equivalents, and opaque pay ratios only serve their interests.

There is scant evidence that higher-paid CEOs create more productive firms. As one Harvard Law School paper observed, pay ratios show how much a company invests in its “human capital”, and matter to workers and investors alike. Consumers who are made aware of this information are more likely to choose products from firms where the ratio is lower, encouraging those firms to address glaring pay disparities.

The consultation reflects the idea that inequality within a company is immaterial, a perplexing stance for a government concerned with fairness. It suggests removing annual shareholder votes on director pay, on the basis that votes are still required every three years. Annual votes were a modest attempt from Theresa May’s Tory government to tame the “unacceptable face of capitalism”, and the GC100 lobby group of corporate leaders has called to scrap them.