The British Home Stores pension scheme: privatised looting?

• DOI: http://doi.org/10.1111/irj.12261
• Published date: 01 July 2019
• Date: 01 July 2019
• Author: Ian Clark

The British Home Stores pension scheme:

privatised looting?

Ian Clark

ABSTRACT

On entering administration, British Home Stores owed its pension scheme £571 mil-

lion—a significant employment relations issue of historical wage theft by investor–

owner managers. The article locates ‘lawful’looting of business assets in a framework

that builds on Ackerlof and Romer’s theory of bankruptcy for profit and connects this

to an empirical narrative on business re-structuring at British Home Stores towards

administration.

1 INTRODUCTION

In May 2000, the Arcadia group headed by Phillip Green bought British Home Stores

(BHS) for £200 million. After sustained re-structuring of the business in March 2015,

Green sold BHS to Retail Acquisitions for £1. At this date, BHS was carrying a pen-

sion fund deficit of £345 million. By April 2016, when BHS was wound up by Her

Majesty’s Customs and Revenues, the pension fund deficit had grown to £571 million,

that is, BHS owed its pension funds £571 million. A parliamentary inquiry into the

collapse of BHS by the Department for Work and Pensions found that Green and

his investment partners hollowed out BHS to the value of £423 million in dividends

and charges paid to Arcadia and associated businesses. Similarly, the inquiry found

that during its 13-month ownership of BHS, Retail Acquisitions extracted £11 million

from the business in charges, dividends and salary payments for its leadership team.

Prominent observers of BHS under Phillip Green have described how the business

was ‘looted’(Shah, 2018: 282).

In a BBC radio interview, Frank Field MP, who chaired the Department of Work

and Pensions inquiry, went further than Shah.

He is worse than Maxwell, he plundered BHS and must now pay out at least £571 million to fund the

pension hole. (BBC Radio 4 Today programme, 25 July 2016)

Field later concluded that it might be a coincidence that the numbers extracted from

BHS approximate to those of the BHS pension fund deficit. Field’s statements and

observations raise two research questions; first, in this case as in many others, the pen-

sion fund deficit and associated corporate debt pile are not the result of an amorphous

‘pensions crisis’. Rather, they result from the demands of investor value, the

Friedman doctrine on the aims of the firm and in the contemporary period the

financialisation of businesses. Therefore, how does firm level re-structuring come to

❒Ian Clark, Nottingham Trent University, Nottingham, UK. Correspondence to: Ian Clark, Professor of

Work and Employment, Nottingham Business School, Nottingham Trent University, Nottingham, UK.

E-mail: ian.clark@ntu.ac.uk

Industrial Relations Journal 50:4, 331–347

ISSN 0019-8692

© 2019 The Authors Industrial Relations Journal published by Brian Towers (BRITOW) and John Wiley & Sons Ltd

This is an open access article under the terms of the Creative Commons Attribution License, which permits use, distribu-

tion and reproduction in any medium, provided the original work is properly cited.

enable the lawful diversion of employer contributions to final salary pension funds to

other recipients? Second, fundamental defects in the regulation of incentive arrange-

ments for investor–owner managers enable them to raise debt and borrow against

pension fund contributions in order to pay dividends and fees. So why is this diversion

and the manner in which it unravelled at BHS an employment relations issue? Both

questions are timely and thrown into sharper focus for workers as policymakers,

and key stakeholders consider issues around implementation of the defined benefit

pension’s white paper (Department for Work and Pensions, 2018). The white paper

focusses on worker protections therein and makes proposals around the regulation

and the consolidation of pension schemes. More critically, the article comes as the

Department of Work and Pensions is consulting on proposals to expand The Pensions

Regulator’s powers. Specifically, reporting and anti-avoidance of employer liabilities

come under scrutiny with discussion on effective and persuasive imposition of civil

and criminal sanctions on those who oversee negligent schemes (The Pensions

Regulator, 2017, 2018). As part of this process in February 2019, the Work and

Pensions secretary unveiled jail terms of up to seven years for managers who oversee

wilful or reckless mismanagement of a firm-level pension scheme.

To address the two research questions, the article proceeds through four parts. Part

one makes a first contribution to new knowledge and methodological innovation by

locating ‘lawful’looting of business assets in a theoretical framework that builds on

Akerlof and Romer (1993), who outlined the idea of bankruptcy for profit. This for-

mulation generates new knowledge by outlining how moral hazard provisions pro-

vided by the state insulate investor–owner managers of a business from the social

harm consequences of innovative uses of employer contributions to pension funds.

By further developing these theories and applying them to the winding-up and admin-

istration of BHS, it is possible to theorise how business owners have an incentive to

collapse a business into liquidation or administration. Part two outlines why the ap-

propriation of employer contributions to final salary pension schemes is an employ-

ment relations issue. To connect the theoretical argument with empirical material,

part three grounds the theoretical framework in a narrative that details business re-

structuring at BHS towards administration under the ownership of Arcadia and

Retail Acquisitions. The narrative provides a further (empirical) contribution to

new knowledge by revealing how lawful uses of employer pension fund contributions

enable owner–investors to extract value from a business and the deferred incomes of

its workers. Lastly, part four provides a discussion of the two research questions and a

conclusion on the potential for the re-politicisation of pension fund contributions in

the wake of the collapse of BHS and other more recent pension fund collapses such

as that at Carillion. Before moving to part one, the remainder of the introduction

contextualises the BHS case during a period when ‘financialisation’dominated the

management of many businesses and associated approaches to profit and surplus. A

brief definition of final salary or defined benefit pension schemes and the status these

schemes have in the UK follows this discussion.

1.1 Financialisation

The term financialisation refers to a pattern of accumulation where profit making oc-

curs increasingly through financial channels rather than through trade and commod-

ity (Krippner, 2005: 181). More recently, Thompson (2013: 475) has summarised the

literature on financialisation as a growth or macroeconomic regime whose source of

332 Ian Clark

© 2019 The Authors Industrial Relations Journal published by Brian Towers (BRITOW) and John Wiley & Sons Ltd