David Cameron's speech on reform was a clever one. But if he is serious about change, there are more profound ways of changing the economy than share schemes and votes on pay
The moral high ground seems to be getting very crowded lately. Ed Miliband made reforming capitalism the centrepiece of his Labour party conference speech; Nick Clegg has argued for a "John Lewis economy"; and on Friday the prime minister joined them, laying claim to a distinctive Conservative doctrine of "popular capitalism".
Cameron's speech was clever: the argument that Labour had struck a "Faustian pact" with the City, allowing finance to let rip while milking it for tax revenues, has more than a grain of truth in it.
Building his current enthusiasm for making markets work better into a longer-term political narrative that took in the emancipation of slaves and the abolition of the Corn Laws was also shrewd. Conservatives understand how the markets work, he implied, so they know how to tame them; Labour was naive enough to be taken in by the myth that the City could regulate itself last time around – so you can't trust them to remodel the system now.
And by laying out a series of measures (albeit that few of them were new), from simplifying the laws on co-operatives to controlling bankers' bonuses, he tried to show that unlike Miliband, whose conference speech was long on righteous fury and short on concrete policy, he can translate disquiet about how the system works into action.
But Cameron should be measured not by what he did say, but what he didn't.
There was little mention of the tax system, aside from George Osborne's welcome consultation on anti-tax-abuse rules. Yet taxation frames the economy. It rewards some activities (saving for a pension, for example) and punishes others (smoking). The influx of American traders, Russian oligarchs and Greek shipping magnates to London over the past 20 years wasn't just driven by our lax regulatory regime or the standard of the cooking in Mayfair's finest eateries: it also helps that many of them could claim "non-domicile" tax status by virtue of being born abroad, and pay nothing on their income from overseas – which, if they arranged their affairs right, meant almost all of it.
To be fair, it was George Osborne who first mooted the idea of charging non-doms an annual levy – a proposal swiftly picked up by Alistair Darling – and more than 130,000 wealthy individuals have since signed up to register as non-doms.
But the problems arising from taxation do not end there. The frenzy of private equity deals that swept through the economy in the noughties was partly because interest rates were unusually low; but it also reflected the structure of the tax system.
Companies can claim back debt repayments against their corporate tax bill. That means the "leveraged buyout" – gobbling up a firm using a loan which the firm itself will then have to repay – has an inbuilt financial advantage over a straight takeover. As the recent fortunes of a string of companies that were loaded up with debt in the good years, from Punch Taverns to Peacocks to EMI, has shown, this approach can leave a firm – and the jobs of its unwitting workers – highly vulnerable if the economy turns sour. It's not good for the economy, or society – yet it's privileged in the tax system.
As for private equity managers themselves, just like hedge fund managers, they pay embarrassingly low tax rates. They receive a management fee (traditionally 2% of the funds invested) plus up to 20% of the profits generated by companies in their portfolios, an arrangement known as "carried interest". That profit share is treated by HM Revenue & Customs as a capital gain, not the boring old income that the rest of us earn. And that means it's taxed much more lightly – at 18p, compared to the 50p top rate.
The overarching logic is that investors who are willing to jeopardise their livelihoods by taking a stake in a risky start-up, or founding a business, should be taxed more lightly than mere wage-slaves who turn up in the morning and clock off at night. In Thatcherite parlance, they're "wealth creators". But if all they've done is leverage a company up to the hilt, implement a ruthless cost-cutting programme (ie taken an axe to the workforce) and then put it up for sale, why should they be given advantages?
Even in the US, where multibillionaires have traditionally been treated with less suspicion than on this side of the Atlantic, there has been a wave of outrage about Mitt Romney's admission that he pays a tax rate of just 15% on his multimillion-dollar fortune – and, according to some reports, little or nothing on the large proportion of it salted away in the Cayman Islands.
And tax is just the start. A genuine, thoroughgoing re-examination of the way capitalism works in the UK would extend far beyond the question of whether staff should be handed a few more shares, or supine fund managers given the right to vote down the eye-watering pay deals that few of them saw fit to oppose during the boom years.
It's now for Miliband to prove that he has more than a bit of high-flown rhetoric and tinkering around the edges in mind. As Philip Booth of the rightwing Institute of Economic Affairs frostily remarked after Cameron's speech, "nobody wants to see a less moral capitalism".