How Britain can help you get away with stealing millions: a five-step guide

Dirty money needs laundering if it’s to be of any use – and the UK is the best place in the world to do it writes Oliver Bullough in The Guardian 


Kleptocrats, fraudsters and crooks steal hundreds of billions of pounds, dollars and euros from the rest of us every year, but that gives them a problem: how can they stop the rest of us knowing what they’ve done with the proceeds? They have to stop their haul looking suspicious, to cleanse it of any criminal taint, or face losing their hard-stolen cash.

Money laundering, as this process is known, is notoriously difficult to uncover, investigate and prosecute. Occasionally, however, an insider breaks cover – someone such as Howard Wilkinson, who blew the whistle on perhaps the largest money-laundering scheme in history, the movement of €200bn of suspect funds through the Estonian branch of Denmark’s biggest bank between 2007 and 2015, most of it earned in the dodgier corners of the former Soviet Union, some perhaps belonging to Vladimir Putin himself. 

“No one really knows where this money went,” Wilkinson, a former Danske Bank employee, told Denmark’s parliament last year. Once the money had got into the global financial system, “it was clean, it was free.”
Britain’s most famous money launderer is HSBC, thanks to its systematic cleansing of the earnings of the Latin American drug cartels over the second half of the last decade, for which it was fined $1.9bn by the US government in 2012. But that was a tiny operation compared to the Danske Bank scandal. If gathered together, the suspect funds moved through the bank’s Estonian outpost could buy HSBC, with more than enough left over to buy Danske Bank too.

The scandal has been big news in Denmark and Estonia, but barely grazed public consciousness in the UK. This is strange, because Britain played a key role. All of the owners of the bank accounts that first aroused Wilkinson’s suspicions had their identity hidden behind corporate structures registered in the UK – including Lantana Trade LLP, the one that may have been connected to Putin. That means this is not just a Russian, Estonian or Danish scandal, but something far closer to home. In November, Wilkinson told a European parliament committee that the countries hosting these companies are just as culpable. “Worst of all is the United Kingdom,” he said. “The United Kingdom is an absolute disgrace.”

The British government is supposedly committed to tackling grand corruption and financial crime, yet Britain’s involvement in this mega-scandal has never been mentioned in parliament, or been addressed by ministers. It is far from the first time that British companies have been involved in high-profile money-laundering. Among the characters who have used British shell companies to hide their money are Paul Manafort, disgraced former chairman of Donald Trump’s election campaign, and Viktor Yanukovich, overthrown president of Ukraine, among thousands of lower-profile opportunists.

It is increasingly hard to avoid the conclusion that Britain tolerates this kind of behaviour deliberately, because of the money it brings into to our economy.
That being so, why should hardened criminals be the only ones getting rich off Britain’s lax enforcement? Here’s how you too can use British shell companies to cleanse your dirty money – in five easy steps.

 

Step 1: Forget what you think you know

If you have ambitions to steal a lot of money, forget about using cash. Cash is cumbersome, risky and highly limiting. Even if Danske Bank had used the highest denomination banknotes available to it, that €200bn would have weighed 400 tonnes, an amount four times heavier than a blue whale. Just moving it would have been a serious logistical challenge, let alone hiding it. It would have been a magnet for thieves, and would have attracted some unwelcome questions at customs.

If you want to commit significant financial crime, therefore, you need a bank account, because electronic cash weighs nothing, no matter how much of it there is. But that causes a new problem: the bank account will have your name on it, which will alert the authorities to your identity if they come looking.

This is where shell companies come in. Without a company, you have to act in person, which means your involvement is obvious and overt: the bank account is in your name. But using a company to own that bank account is like robbing a house with gloves on – it leaves no fingerprints, as long as the company’s ownership information is hidden from the authorities. This is why all sensible crooks do it.

The next question is what jurisdiction you will choose to register your shell company in. If you Google “offshore finance”, you’ll see photos of tropical islands with palm trees, white sands and turquoise waters. These represent the kind of jurisdictions – “sunny places for shady people” – where we expect to find shell companies. For decades, places such as Anguilla, the British Virgin Islands, Gibraltar and others sold the companies that people hide behind when committing their crimes. But in recent years, the world has changed – those jurisdictions have been cajoled, bullied and persuaded to keep good records of company ownership, and to reveal those records when police officers come looking. They are no longer as useful as they used to be.

So where is? This is where the UK comes in. When it comes to financial crime, Britain is your best friend.

Here is the secret you need to know to get started in the shell company game: the British company registration system contains a giant loophole – the kind of loophole you can drive a billion euros through without touching the sides. That is why UK shell companies have enabled financial crime all over the world, from giant acts of kleptocratic plunder to sad and squalid frauds that rob pensioners of their retirement savings.

So, step one: forget what you think you know about offshore finance. The true image associated with “shell companies” these days should not be an exotic island redolent of the sound of the sea and the smell of rum cocktails, but a damp-stained office block in an unfashionable London suburb, or a nondescript street in a northern city. If you want to set up in the money-laundering business, you don’t need to move to the Caribbean: you’d be far better off doing it from the comfort of your own home.

Step 2: Set up a company

The second step is easy, and involves creating a company on the Companies House website. Companies House maintains the UK’s registry of corporate structures and publishes information on shareholders, directors, accounts, partners and so on, so anyone can check up on their bona fides.

Setting up a company costs £12 and takes less than 24 hours. According to the World Bank’s annual Doing Business report, the UK is one of the easiest places anywhere to create a company, so you’ll find the process pretty straightforward.

This is another reason not to bother with places like the British Virgin Islands: setting up a company there will cost you £1,000, and you’ll have to go through an agent who will insist on checking your identity before doing business with you. Global agreements now require agents to verify their clients’ identity, to conduct the same kind of “due diligence” process demanded when opening a bank account. Almost all the traditional tax havens have been forced to comply with the rules, or face being blacklisted by the world’s major economies.

This means there are now few jurisdictions left where you can create a genuinely anonymous shell company – and those that remain look so dodgy that your company will practically scream “Beware! Fraudster!” to anyone you try to do business with.

But Britain is an exception. While it has bullied the tax havens into checking up on their customers, Britain itself doesn’t bother with all those tiresome and expensive “due diligence” formalities. It is true that, while registering your company on the Companies House website, you will find that it asks for information such as your name and address. On the face of it, that might look worrying. If you have to declare your name and address, then how will your company successfully shield your identity when you engage in industrial-scale fraud?

Do not be concerned, just read on.

Step 3: Make stuff up

This third step may be the hardest to really take in, because it seems too simple. Since 2016, the UK government has made it compulsory for anyone setting up a company to name the individual who actually owns it: “the person with significant control”, or PSC. Before this reform it was possible to own a company with another company and, if that company was not British, the actual owner could hide their identity.

In theory, the introduction of the PSC rule should have prevented the use of a British shell company to anonymously commit financial crime. Don’t worry though, because it didn’t. Here is the secret: no one checks the accuracy of the information you provide when you register with Companies House. You can say pretty much anything and Companies House will accept it.
So this is step three: when you’re entering the information to create your company, make mistakes. Suspicious typos are everywhere once you start delving into the Companies House database. For instance, many money-laundering investigations involving the former USSR eventually bump against a Belgian-based dentist, whose signature adorns the accounts of hundreds, if not thousands, of different companies, including Lantana Trade LLP. When he was tracked down to his home address in Belgium last year, the dentist claimed that his signature had been forged and that he had no connection to the companies. Whoever was filing the documents was remarkably imaginative when it came to spelling his name. Every document filed with the UK registry has the same signature, but his name is spelt in at least eight different ways: Ali Moulaye, Alli Moulaye, Aly Moulaye, Ali Moyllae, Ali Moulae, Ali Moullaye, Aly Moullaye and, oddly, Ian Virel.

With such boundless opportunities for creativity, why not have fun? Recently, while messing about on the Companies House website, I came across a PSC named Mr Xxx Stalin, who is apparently a Frenchman resident in east London. It is perhaps technically possible that Xxx is a genuine name given to Mr Stalin by eccentric parents – but, if so, such eccentric parents are remarkably widespread.

Xxx Stalin led me to a PSC of a different company, who was named Mr Kwan Xxx, a Kazakh citizen, resident in Germany; then to Xxx Raven; to Miss Tracy Dean Xxx; to Jet Xxx; and finally to (their distant cousin?) Mr Xxxx Xxx. These rabbitholes are curiously engrossing, and before long I’d found Mr Mmmmmmm Yyyyyyyyyyyyyyyyyy, and Mr Mmmmmm Xxxxxxxxxxx (correspondence address: Mmmmmmm, Mmmmmm, Mmm, MMM), at which point I decided to stop.

As trolling goes, it is quite funny, but the implications are also very serious, if you think about what companies are supposed to be for. Limited companies and partnerships have their liability for debts limited, which means that if they go bust, their investors are not personally bankrupted. It’s a form of insurance – society as a whole is accepting responsibility for entrepreneurs’ debts, because we want to encourage entrepreneurial behaviour. In return, entrepreneurs agree to publish details about their companies so we can all check what they are up to, and to make sure they’re not abusing our trust.

The whole point of the PSC registry was to stop fraudsters obscuring their identities behind shell companies, and yet, thanks to Companies House’s failure to check the information provided to it and thus to enforce the rules, they are still doing so. How exactly could society find someone who gives their identity as Mr Xxxxxxxxxxx, and their address as the chorus of a Crash Test Dummies song?

Even when the company documents provide an actual name, rather than a random selection of letters, the information is often very hard to believe. For example, in September, Companies House registered Atlas Integrate Services LLP, which declared a PSC with a date of birth that showed her to be just two months old at the time. In her two months of life, she had not only found time to get started in business, but also apparently to get married, since she was listed as “Mrs”. The LLP’s incorporation document states: “This person holds the right, directly or indirectly, to appoint or remove a majority of the persons who are entitled to take part in the management of the LLP”. It does not explain how exactly a babe in arms would achieve this.

This is not a one-off. The anti-corruption campaign group Global Witness looked into PSCs last year, and found 4,000 of them were under the age of two. One hadn’t even been born yet. At the opposite end of the spectrum, its researchers found five individuals who each controlled more than 6,000 companies. There are more than 4m companies at Companies House, which is a very large haystack to hide needles in.

You don’t actually even need to list a person as your company’s PSC. It’s permissible to say that your company doesn’t know who owns it (no, you’re not misunderstanding; that just doesn’t make sense), or simply to tie the system up in knots by listing multiple companies in multiple jurisdictions that no investigator without the time and resources of the FBI could ever properly check.

This is why step three is such an important one in the five-step pathway to creating a British shell company. If you can invent enough information when filing company accounts, then the calculation that underpins the whole idea of a company goes out of the window: you gain the protection from legal action, without giving up anything in return. It’s brilliant.

But don’t dive in just yet; there are two more steps to follow before you can be confident of doing it properly.

Step 4: Lie – but do so cleverly

Most of the daft examples earlier (Mmmmmmm, Mmmmmm, Mmm, MMM) would not be useful for committing fraud, since anyone looking at them can tell they’re not serious. Cumberland Capital Ltd, however, was a different matter. It looked completely legitimate.

It controlled a company called Tropical Trade, which, in October 2016, cold-called a 63-year-old retired postal worker in Wisconsin identified in court filings as “MJ”. On the phone, a salesman offered her an investment product, which – he said – would make returns of 81%. He chatted about his wife and family and came across as “kind and trustworthy”, MJ later told police. “During two weeks in November of 2016, she allowed Tropical Trade to charge $34,500 on her Mastercard and Visa credit cards,” the filing states. When she tried to get her money back, her emails and calls were ignored, and she never saw it again.

She had fallen victim to the global epidemic of binary-options fraud. Binary options are a form of betting on the stock market that are now banned in many countries – including Israel, where much of the industry was based – since fraudsters used the idea to fix odds, keep winnings and target the vulnerable. According to the FBI, taken as a whole, these fraudsters may have been fleecing their marks of up to $10bn a year.

When US police came looking for the people behind Cumberland Capital Ltd, they searched the Companies House website and found that its director was an Australian citizen called Manford Martin Mponda. Anyone researching binary-options fraud might quickly conclude that Mponda was a kingpin. He was a serial company director, with some 80 directorships in UK-registered companies to his name, and features in dozens of complaints.

It already looked like a major scandal that British regulation was so lax that Mponda could have been allowed to conduct a global fraud epidemic behind the screen of UK-registered companies, but the reality was even more remarkable: Mponda had nothing to do with it. He was a victim, too.

Police officers suspect that, after Mponda submitted his details to join a binary-options website, his identity was stolen so it could be used to register him as a director of dozens of UK companies. The scheme was only exposed after complaints to consumer protection bodies were passed onto the City of London police, who then asked their Australian colleagues to investigate.

Companies House has since deleted Mponda’s name from documents related to dozens of other companies, but it was too late for “MJ” and thousands of other victims. A small number of the binary-options masterminds have been caught, but the money they stole has vanished into the labyrinth of interlocking shell companies, and the individuals behind Cumberland Capital have not been identified.

“Most of the binary-options firms claimed to be in the UK. People are more likely to deal with a UK company than a company in Israel, as it has a better reputation when it comes to finances,” said DS Alex Eristavi of the City of London Police’s investment fraud team. “Companies House records are provided in good faith. There’s not so much scrutiny as goes on in, say, Italy or Spain, where you have to go through the lawyers and do it properly. Here the information is submitted voluntarily. People don’t realise that, they take it as being carved in stone.”

So here is step four: don’t just lie, lie cleverly. British companies look legitimate, so look legitimate yourself. Steal a real person’s name, and put that on the company documents. Don’t put your own address on the documents, rent a serviced office to take your post: Paul Manafort used one in Finchley, the binary options fraudsters went to Liverpool, and Lantana Trade was based in the London suburb of Harrow.

The financial documents you file look better if they’ve been audited by an accountant, so file genuine-looking accounts, and claim they’ve been audited by a proper accountancy firm. That isn’t checked either, so just find an accountant online and claim you’ve employed them. Accountants quite regularly find themselves contacted about accounts they have never seen before, and make the unwelcome discovery they have been personally named as having approved them.

Steps 1-4: A brief recap

So, to summarise the tricks so far, if you want to create an impenetrable weapon for committing fraud: first, forget about the supposed offshore centres and come to the UK; then take advantage of the super-easy Companies House web portal; then enter false information; and finally make sure that information is plausible enough to deceive a casual observer.
We’re nearly there. It’s time for the final step. 

Step 5: Don’t worry about it

I know what you’re thinking: it cannot be this easy. Surely you’ll be arrested, tried and jailed if you try to follow this five-step process. But if you look at what British officials do, rather than at what they say, you’ll begin to feel a lot more secure. The Business Department has repeatedly been warned that the UK is facilitating this kind of financial crime for the best part of a decade, and is yet to take any substantive action to stop it. (Though, to be fair, it did recently launch a “consultation”.)

Before 2011, only registered company-formation businesses could access Companies House’s web portal, which meant there was a clear connection between an actual verified individual and companies being created, since you could see who had created them. There was still fraud, of course, but it was relatively easy to understand who was responsible.

In 2011, then-business secretary and Liberal Democrat MP Vince Cable decided to open up Companies House, and everything changed. After Cable’s reform, anyone with an internet connection, anywhere in the world, could create a UK company in about as much time as it takes to order a couple of pizzas, and for approximately the same amount of money. The checks were gone; there was no longer any connection to a verifiably existing person; it was as easy to create a UK company as it was to set up a Twitter account. The rationale was that this would unleash the latent entrepreneurship within the British nation by making it easy to turn business ideas into thriving concerns.

Instead of unchaining a new generation of British businesspeople, however, Cable let slip the dogs of fraud. At first, this rather technical modification to an obscure corner of the British machinery of state did not garner much attention, but for people who understood what it meant it was alarming. One such person was Kevin Brewer, a Warwickshire businessman who had been in the company forming business for decades, and who attempted to warn Cable of the potential risks inherent in the new policy.

The method Brewer chose to make his warning was perhaps slightly unwise. He registered a company – John Vincent Cable Services Ltd – with Vince Cable listed as the sole shareholder, then wrote to the business secretary to explain what he had done. It was intended as a demonstration of how easy it is to file unverified information with Companies House, but it failed to focus attention in the way he had hoped. Jo Swinson MP, who worked with Cable, wrote Brewer a stern letter, telling him he should not have done what he did, and assured him that the new system was very good. Brewer concluded that the coalition government was not going to take his concerns seriously.

In 2015, there was a general election, Cable lost his seat, the Conservatives formed a majority government, and Brewer decided to try again with the same stunt. He created Cleverly Clogs Ltd, a company apparently owned by three people: James Cleverly MP, Baroness Neville-Rolfe, who was a minister in the business department, and a fictional Israeli called Ibrahim Aman. Brewer was no more successful in persuading Tories than he had been at persuading Liberal Democrats, however. At that point, he gave up on his attempt to show the government it was enabling limitless opportunities for fraud.

There is, it turns out, a simple explanation for why successive governments have failed to do anything about it. Last year, when challenged in the House of Commons, Treasury minister John Glen stated that Companies House simply couldn’t afford to check the information filed with it, since that would cost the UK economy hundreds of millions of pounds a year. This is almost certainly an exaggeration. Anti-corruption activists who have looked at the data say the cost would in fact be far less than that, but the key point is that the reform would pay for itself. As Brewer has pointed out, “the burden of cost is one thing. But the cost of fraud is far greater.”

VAT fraud alone costs the UK more than £1bn a year, while the National Crime Agency estimates the cost of all fraud to the UK economy to be £190bn. The cost to the rest of the world of the money laundering enabled by UK corporate entities is almost certainly far higher. Spending hundreds of millions of pounds to prevent hundreds of billions’ worth of crime looks like a sensible investment, however you look at the data, particularly since the remedy – obliging Companies House to check the accuracy of the information filed on its registry – would be so simple. (When I put this to Companies House, they provided the following statement: “We do not have the statutory power or capability to verify the accuracy of the information that companies provide. However, tackling abuse of the register is a key priority and that’s why we work closely with law enforcement partners to assist their investigations into suspected cases of economic crime and other offences.”)

That is not to say that the government has taken no action. It is illegal to deliberately file false information in registering a company, and punishable by up to two years in prison. In late 2017, Companies House at last alerted prosecutors to the activities of one persistent offender. The target of the prosecution was Kevin Brewer, for the crime of trying to inform politicians about how easy it is to create fake companies.

He was summonsed to appear at Redditch magistrates’ court and, on legal advice, pleaded guilty in March 2018. After adding together his fine, and the government’s costs, he is £23,324 the poorer – quite a high price to pay for blowing the whistle. He is paying it off at £1,000 a month, and remains the only person ever convicted of spoofing the UK’s corporate registry, which is quite a remarkable demonstration of Companies House’s failure to do its job. 

Following his conviction, Brewer’s company National Business Register was removed from the list that Companies House publishes of company formation agents, which had been a key source of new business for him. “There are company formation agents on that list who have permitted huge amounts of fraud, and I’ve been excluded for trying to expose it. I find it incredible that they should turn a blind eye,” he told me. “Is it deliberate? Are they actually trying to get this money into the UK? I don’t want to believe it, but I can’t explain it any other way.”

We don’t know the answer to that, but it does give us lesson number five: don’t worry about it. Commit as much fraud as you like, fill your boots, the only reason anyone would care is if you kick up a fuss. And what sensible fraudster is going to do that?

Why doesn’t Britain have a Huawei of its own?

Aditya Chakrabortty in The Guardian

Chances are that you have learned rather a lot about Huawei. That the Chinese giant is one of the world’s most controversial companies. That security experts, those people we pay to be paranoid on our behalf, warn its telecoms kit could be used by Beijing to spy on us. That Theresa May was begged by cabinet colleagues to keep the firm well away from our 5G network – yet ignored them. And that one or more senior ministers were so eager to prove their concern for national security that they leaked details of their meeting, thus breaching national security.

So you can already guess what will happen when Donald Trump’s secretary of state, Mike Pompeo, meets May and her foreign secretary, Jeremy Hunt, on Wednesday. Once the pleasantries about Harry and Meghan’s baby are over, top of America’s agenda will be to warn No 10 of the threat Huawei poses to British privacy – and to restate that Washington may retaliate by freezing London out of its intelligence network.

Maybe you recall whistleblower Edward Snowden and his revelations, published in this paper, about how US surveillance services are themselves harvesting millions of people’s phone calls and internet usage. Or possibly you are too busy gasping at the haplessness with which a Conservative-run government has allowed itself to be dragged into an escalating trade war between Washington and Beijing. Many are the questions raised by this affair, but among the largest is one I have not seen asked. Namely, where is Britain’s Huawei? How does one of the world’s most advanced economies end up without any major telecoms equipment maker of its own, and having to buy the vital stuff from a company that enjoys, according to the FBI, strong links with both the Chinese Communist party and the People’s Liberation Army?
Well, the answer is that the UK did have one. It was one of the largest and most famous industrial companies in the world. And it was finally killed off within the lifetime of every person reading this article, just over a decade ago. It was called the General Electric Company, or GEC, and the story of how it came to die explains and illuminates much of the mess the country is in today.

At its height, in the early 80s, GEC was not a company at all. It was an empire comprising around 180 different firms and employing about 250,000 people. It built everything from x-ray machines to ships, and it was huge in telecoms and defence electronics. At the helm was Arnold Weinstock, who took the reins in 1963 and spent the next three decades building it into a colossus, securing his place as postwar Britain’s most renowned industrialist.

The son of Jewish Polish immigrants, Weinstock never quite slotted into his role in the British establishment. He was known to be fanatical about cost-cutting, terrible at managing people, and only really lit up by breeding racehorses and visiting Milan’s La Scala opera house. Journalists visiting his Mayfair headquarters found the carpet threadbare and the paint peeling off the walls. A correspondent for the Economist more used to convivial three-bottle lunches with captains of industry came away complaining that GEC’s guests “have never been known to receive so much as a glass of water”.

That Economist profile was headlined Lord of Dullest Virtue, which sums up how both boss and business were seen: steadily profitable yet cautious and utterly unfashionable in the Britain of the 80s, which fancied a turbocharge. Weinstock went unloved by Margaret Thatcher, who preferred the corporate-raiding asset-stripper James Hanson (or Lord Moneybags, as he was dubbed). The post-Big Bang City bankers glanced at GEC’s vast spread of unglamorous businesses, out of step in an era of specialisation, and its shy boss better suited to a Rhineland boardroom – and buried both in plump-vowelled disdain.

Perhaps the pinstriped jeering got to Weinstock. Even as he protested “we’re not a company to render excitement”, he too began indulging in the 1980s business culture of “if it moves, buy it”. Between 1988 and 1998, academics found that GEC did no fewer than 79 “major restructuring events”: buying or selling units, or setting up joint ventures. But it was after Weinstock stepped down in 1996 that all hell broke loose. His replacement was an accountant, George Simpson, who had made his name, as the Guardian sniffed, “selling Rover to the Germans”. The new finance director, John Mayo, came from the merchant-banking world detested by Weinstock. Together the two men looked at the giant cash pile salted away by their predecessor – and set about spending it, and then some.

They sold the old businesses and bought shiny new ones; they flogged off dowdy and snapped up exciting. In just one financial year, 1999-2000, they bought no fewer than 15 companies, from America to Australia. Suddenly, GEC – or Marconi, as the rump was rebranded – was beloved by the bankers, who marvelled at the commissions coming their way, and the reporters, who had headlines to write.

Then came the dotcom bust, and the new purchases went south. A company that had been trading at £12.50 a share was now worth only four pence a pop. In the mid-2000s, Marconi’s most vital client, BT, passed it over for a contract that went instead to … Huawei. Weinstock didn’t live to see the death of his beloved firm but among his last reported remarks was: “I’d like to string [Simpson and Mayo] up from a high tree and let them swing there for a long time.”

This is not a story about genius versus idiocy, let alone good against evil. Weinstock was not quite as dull as made out, nor did he avoid all errors. But it is one of the most important episodes in recent British history – because it highlights the clash between two business cultures. On the one hand is Weinstock, building an institution over decades; on the other is the frenetic wheeler-dealing of Simpson and Mayo, mesmerised by quarterly figures and handing shareholders a fast buck. The road GEC took is the one also taken by ICI and other household names. It is also the one opted for by Britain as a whole, whose political class decided it cared neither who owned our industrial giants or venerable banks or Fleet Street newspapers, nor what they did with them. That is why our capitalism is today dominated by unsavoury, get-rich-quick merchants in the Philip Green mould.

Firms such as GEC and ICI used to invest heavily in research and development, notes Sheffield University’s pro-vice-chancellor for innovation, Richard Jones. Now the UK has been overtaken in R&D by all major western competitors. Even China, a vastly poorer economy in terms of GDP per capita, is more research-intensive than the UK.

Now Britons laud businessmen such as James Dyson who make most of their stuff in Asia. As a result, we rely on the rest of the world to come here and buy our assets. And even on something as relatively simple as telecoms equipment, we can’t help but be pulled into other countries’ strategic battles.

Who owns the country? The secretive companies hoarding England's land

Multi-million pound corporations with complex structures have purchased the very ground we walk on – and we are only just beginning to discover the damage it is doing to Britain. By Guy Shrubsole in The Guardian 


Despite owning 15,000 hectares (37,000 acres) of land, managing a property portfolio worth £2.3bn and having control over huge swaths of central Manchester and Liverpool, very few people have heard of a company named Peel Holdings. It owns the Manchester Ship Canal. It built the Trafford Centre shopping complex and, more recently, sold it in the largest single property acquisition in Britain’s history. It was the developer behind the MediaCityUK site in Salford, to which the BBC and ITV have relocated many of their operations in recent years. Airports, fracking, retail – the list of Peel business interests stretches on and on.

Peel Holdings operates behind the scenes, quietly acquiring land and real estate, cutting billion-pound deals and influencing numerous planning decisions. Its investment decisions have had an enormous impact, whether for good or ill, on the places where millions of people live and work.

Peel’s ultimate owner, the billionaire John Whittaker, is notoriously publicity-shy: he lives on the Isle of Man, has never given an interview and helicopters into his company’s offices for board meetings. He built Peel Holdings in the 1970s and 80s by buying up a series of companies whose fortunes had decayed, but which still controlled valuable land. Foremost among these was the Manchester Ship Canal Company, purchased in 1987. The canal turned out to be valuable not simply as a freight route, but also because of the redevelopment potential of the land that flanked it.

Half of England is owned by less than 1% of the population



Peel Holdings tends not to show its hand in public. Like many companies, it prefers its forays into public political debate to be conducted via intermediary bodies and corporate coalitions. In 2008, it emerged that Peel was a dominant force behind a business grouping that had formed to lobby against Manchester’s proposed congestion charge. The charge was aimed at cutting traffic and reducing the toxic car fumes choking the city. But Peel, as owners of the out-of-town Trafford Centre shopping mall, feared that a congestion charge would be bad for business, discouraging shoppers from driving through central Manchester to reach the mall. Peel’s lobbying paid off: voters rejected the charge in the local referendum and the proposal was dropped.

Throughout England, cash-strapped councils are being outgunned by corporate developers pressing to get their way. The situation is exacerbated by a system that has allowed companies like Peel to keep their corporate structures obscure and their landholdings hidden. A 2013 report by Liverpool-based thinktank Ex Urbe found “well in excess of 300 separately registered UK companies owned or controlled” by Peel. Tracing the conglomerate’s structure is an investigator’s nightmare. Try it yourself on the Companies House website: type in “Peel Land and Property Investments PLC”, and then click through to persons with significant control. This gives you the name of its parent company, Peel Investments Holdings Ltd. So far, so good. But then repeat the steps for the parent company, and yet another holding company emerges; then another, and another. It’s like a series of Russian dolls, one nested inside another.

Until recently, it was even harder to get a handle on the land Peel Holdings owns. Sometimes the company has provided a tantalising glimpse: one map it produced in 2015, as part of some marketing spiel around the “northern powerhouse”, showcases 150 sites it owns across the north-west. It confirms the vast spread of Peel’s landed interests – from Liverpool John Lennon airport, through shale gas well pads, to one of the UK’s largest onshore wind farms. But it’s clearly not everything. A more exhaustive, independent list of the company’s landholdings might allow communities to be forewarned of future developments. As Ex Urbe’s report on Peel concludes: “Peel schemes rarely come to light until they are effectively a fait accompli and the conglomerate is confident they will go ahead, irrespective of public opinion.”

While Peel Holdings is unusual for the sheer amount of land it controls, it is also illustrative of corporate landowners everywhere. Corporations looking to develop land have numerous tricks up their sleeve that they can use to evade scrutiny and get their way, from shell company structures to offshore entities. Companies with big enough budgets can often ride roughshod over the planning system, beating cash-strapped councils and volunteer community groups. And companies have for a long time benefited from having their landholdings kept secret, giving them the element of surprise when it comes to lobbying councils over planning decisions and the use of public space. But now, at long last, that is starting to change. If we want to “take back control” of our country, we need to understand how much of it is currently controlled by corporations.

In 2015, the Private Eye journalist Christian Eriksson lodged a freedom of information (FOI) request with the Land Registry, the official record of land ownership in England and Wales. He asked it to release a database detailing the area of land owned by all UK-registered companies and corporate bodies. Eriksson later shared this database with me, and what it revealed was astonishing. Here, laid bare after the dataset had been cleaned up, was a picture of corporate control: companies today own about 2.6m hectares of land, or roughly 18% of England and Wales.

In the unpromising format of an Excel spreadsheet, a compelling picture emerged. Alongside the utilities privatised by Margaret Thatcher and John Major – the water companies, in particular – and the big corporate landowners, were PLCs with multiple shareholders. There were household names, such as Tesco, Tata Steel and the housebuilder Taylor Wimpey, and others more obscure. MRH Minerals, for example, appeared to own 28,000 hectares of land, making it one of the biggest corporate landowners in England and Wales.

Gradually, I pieced together a list of what looked to be the top 50 landowning companies, which together own more than 405,000 hectares of England and Wales. Peel Holdings and many of its subsidiaries, unsurprisingly, feature high on the list. But while the dataset revealed in stark detail the area of land owned by UK-based companies, it did nothing to tell us what they owned, and where.

That would take another two years to emerge. Meanwhile, Eriksson had been busy at work with his Private Eye colleague Richard Brooks and the computer programmer Anna Powell-Smith, delving into another form of corporate landowner – firms based overseas, yet owning land in the UK. Of particular interest were companies based in offshore tax havens, a wholly legal but controversial practice, given the opportunities offshore ownership gives for possible tax avoidance and for concealing the identities of who ultimately controls a company. Further FOI requests to the Land Registry by Eriksson hit the jackpot when he was sent – “accidentally”, the Land Registry would later claim – a huge dataset of overseas and offshore-registered companies that had bought land in England and Wales between 2005 and 2014: some 113,119 hectares of land and property, worth a staggering £170bn.

 

Victoria Harbour building at Salford Quays, owned by Peel Holdings. Photograph: Mike Robinson/Alamy

Private Eye’s work revealed that a large chunk of the country was not only under corporate control, but owned by companies that – in many cases – were almost certainly seeking to avoid paying tax, that most basic contribution to a civilised society. Some potentially had an even darker motive: purchasing property in England or Wales as a means for kleptocratic regimes or corrupt businessmen to launder money, and to get a healthy return on their ill-gotten gains in the process. This was information that clearly ought to be out in the open, with a huge public interest case for doing so. And yet the government had sat on it for years.

The political ramifications of these revelations were profound. They kickstarted a process of opening up information on land ownership that, although far slower and less complete than many would have liked, has nevertheless transformed our understanding of what companies own. In November 2017, the Land Registry released its corporate and commercial dataset, free of charge and open to all. It revealed, for the first time, the 3.5m land titles owned by UK-based corporate bodies – covering both public sector institutions and private firms – with limited companies owning the majority, 2.1m, of these. But there were two important caveats. Although we now had the addresses owned by companies, the dataset omitted to tell us the size of land they owned. Second, the data lacked accurate information on locations, making it hard to map.

Despite this, what can we now say about company-owned land in England and Wales? Quite a lot, it turns out. We know, for example, that the company with the third-highest number of land titles is the mysterious Wallace Estates, a firm with a £200m property portfolio but virtually no public presence, and which is owned ultimately by a secretive Italian count. Wallace Estates makes its money from the controversial ground rents market, whereby it owns thousands of freehold properties and sells on long leases with annual ground rents.

We also now know that Peel Holdings and its numerous subsidiaries owns at least 1,000 parcels of land across England – not just shopping centres and ports in the north-west, but also a hill in Suffolk, farmland along the Medway and an industrial estate in the Cotswolds. Councils, MPs and residents wanting to keep an eye on what developers and property companies are up to in their area now have a powerful new tool at their disposal.

The data is full of odd quirks and details. Who would have guessed, for instance, that the arms manufacturer BAE owns a nightclub in Cardiff, a pub on Blackpool’s promenade and a service station in Pease Pottage, Sussex? It turns out that they are all investments made by BAE’s pension fund; if selling missiles to Saudi Arabia doesn’t prove profitable enough, it appears the company’s strategy is to make a few quid out of tired drivers stopping for a coffee break off the M23.

The data also lets us peer into the property acquisitions of the big supermarkets, which back in the 1990s and early 2000s involved building up huge land banks to construct ever more out-of-town retail parks. Tesco, via a welter of subsidiaries, owns more than 4,500 hectares of land – and although much of this comprises existing stores, a good chunk also appears to be empty plots, apparently earmarked for future development. One analysis by the Guardian in 2014 estimated that the supermarket was hoarding enough land to accommodate 15,000 homes. More recently, however, Tesco’s financial travails have prompted it to sell off some of its sites. Internet shopping and pricier petrol have made giant hypermarkets built miles from where people live look less and less like smart investments. In 2016, Tesco’s beleaguered CEO announced the company was looking to make better use of the land it owned by selling it for housing, and even by building flats on top of its superstores. As for the supermarkets’ internet shopping rival Amazon, whose gigantic “fulfilment centres” resemble the vast US government warehouse at the end of Raiders of the Lost Ark – well, Amazon currently has 16 of those across the UK. And it has grown very quickly: all but one of its property leases have been bought in the past decade.

Companies are increasingly taking over previously public space in cities, too. Recent years have seen a proliferation of Pops – privately owned public spaces – as London, Manchester and other places redevelop and gentrify. You know the sort of thing: expensively landscaped swaths of “public realm”. Aesthetically, they are all very nice, but try to use Pops for some peaceful protest, and you are in for trouble. They are invariably governed by special bylaws and policed by private security, itching to get in your face. I once found this to my cost when staging a tiny, two-person anti-fracking demo outside shale-gas financiers Barclays bank in Canary Wharf. Canary Wharf is partly owned by the Qatari Investment Authority, and – bizarrely – photography is banned. Within a minute of us taking the first selfie on our innocuous protest, security guards had descended en masse, and we spent the next hour running around Canary Wharf trying to evade them.

The Land Registry’s corporate ownership dataset contains millions of entries, and much remains to be uncovered. Some of the information appears trivial at first glance – a company owns a factory here, an office there: so what? But as more people pore over the data, more stories will likely emerge. Future researchers might find intriguing correlations between the locations of England’s thousands of fast-food stores and the health of nearby populations, be able to track gentrification through the displacement of KFC outlets by Nando’s restaurants, and so on.

But to really get under the skin of how companies treat the land they own, and the wider repercussions, we need to zoom in on the housing sector, where debates about companies involved in land banking and profiteering from land sales are crucial to our understanding of the housing crisis.

One particularly controversial aspect of the housing debate that has generated much heat, and little light, in recent years is the debacle over land banking, the practice of hoarding land and holding it back from development until its price increases.

In 2016, the then housing secretary, Sajid Javid, furiously accused large housing developers of land banking and demanded they “release their stranglehold” on land supply. Housebuilders, not used to such impertinence from a Conservative minister, hit back. “As has been proved by various investigations in the past, housebuilders do not land bank,” a spokesperson for the Home Builders Federation told the Telegraph. “In the current market where demand is high, there is absolutely no reason to do so.”

So who is right? This is a complex area, but one that is important to investigate. Can the Land Registry’s corporate ownership data help us get to the bottom of it?

It is common for UK pension funds and insurance companies to buy up land as a long-term strategic investment. Legal & General, for example, owns 1,500 hectares of land that it openly calls a “strategic land portfolio … stretching from Luton to Cardiff”. Its rationale for buying land is simple: “Strategic land holdings are underpinned by their existing use value [such as farming] and give us the opportunity to create further value through planning promotion and infrastructure works over the medium to long term.”

When I looked into where Legal & General’s land was located, I noticed something odd. Nearly all of it lay within green belt areas, where development is restricted. The company appears to have bought it with the aim of lobbying councils to ultimately rip up such restrictions and redesignate the site for development in future.

In the case of pension funds lobbying to rip up the green belt, it’s the planning system that is (rightly) constraining development, not land banking itself. And none of this implicates the usual bogeymen of the housing crisis, the big housebuilding companies. By examining what these major developers own, is it possible to say whether they’re actively engaged in land banking?

There is no doubt that many of the major housebuilding companies own a lot of land. What’s more, housing developers themselves talk about their “current land banks” and publish figures in annual reports listing the number of homes they think they can build using land where they have planning permission. As the housing charity Shelter has found, the top 10 housing developers have land banks with space for more than 400,000 homes – about six years’ supply at current building rates.

Prompted by such statistics, the government ordered a review into build-out rates in 2017, led by Sir Oliver Letwin. Yet when Letwin delivered his draft report, he once again exonerated housebuilders from the charge of land banking. “I cannot find any evidence that the major housebuilders are financial investors of this kind,” he stated, pointing the finger of blame instead at the rate at which new homes could be absorbed into the marketplace.

Part of the problem is that the data on what companies own still isn’t good enough to prove whether or not land banking is occurring. The aforementioned Anna Powell-Smith has tried to map the land owned by housing developers, but has been thwarted by the lack in the Land Registry’s corporate dataset of the necessary information to link data on who owns a site with digital maps of that area. That makes it very hard to assess, for example, whether a piece of land owned by a housebuilder for decades is a prime site accruing in value or a leftover fragment of ground from a past development.

 

Shoppers in the Trafford Centre, a shopping mall until recently owned by Peel Holdings. Photograph: Oli Scarff/AFP/Getty

Second, the scope of Letwin’s review was drawn too narrowly to examine the wider problem of land banking by landowners beyond the major housebuilders. As the housing market analyst Neal Hudson said when it was published, the “review remit ignored the most important and unknown bit of the market: sites and land ownership pre-planning.”

In fact, if Letwin had raised his sights a little higher, he would have seen there is a whole industry of land promoters working with landowners to promote sites, have them earmarked for development in the council’s local plan, and increase their asking price. As investigations by Isabelle Fraser of the Telegraph have revealed: “A group of private companies, largely unknown to the public, have carved out a lucrative niche locating and snapping up land across the UK.”

One such company, Gladman Land, boasts on its website of a 90% success rate at getting sites developed. Few of these firms appear to own much land themselves; rather, they work with other landowners, perhaps signing options agreements or other such deals. Consultants Molior have estimated that between 25% and 45% of sites with planning permission in London are owned by companies that have never built a home.

This gets us to the heart of the housing crisis. Sure, we need housing developers to build more homes. But most of all we need them to build affordable homes. And developers that are forced to pay through the nose to persuade landowners to part with their land end up with less money left over for good-quality, affordable housing. By all means, let’s continue to pressure housebuilders whenever they try to renege on their planning agreements. But at root, we have to find ways to encourage landowners of all kinds – corporate or otherwise – to part with their land at cheaper prices.

Since the first appearance of modern corporations in the Victorian period, companies have expanded to become the owners of nearly a fifth of all land in England and Wales. Much of this land acquisition is uncontested: space for a factory here, an office block there. But some of it has proven highly controversial. Huge retailers and property groups like Tesco and Peel Holdings have eroded town centres and high streets by amassing land for out-of-town superstores, and lobbied to maintain a culture of car dependency. Multinational agribusinesses have exacerbated the industrialisation of our food supply and accelerated the decline of small-scale farmers. Property firms have made tidy profits from the privatisation of formerly public land – which might otherwise have gone into the public purse, had previous governments treated their assets more wisely.

Though the veil of secrecy around company structures and what corporations own is at last lifting, thanks to recent data disclosures by government, there’s still much that needs to be done to make sense of this new information. The Land Registry needs to disclose proper maps of what companies own if we are to get to the bottom of suspect practices like land banking, and give communities a fighting chance in local planning battles.

Legally obliged to maximise profits for their shareholders, and biased towards short-term returns, companies make for poor custodians of land. Nor are corporate landowners capable of solving the housing crisis. Hoarded, developed, polluted, dug up, landfilled: the corporate control of England’s acres has gone far enough.

Americans really pay a bribe for a good education? In Britain, we’ve got far subtler ways

The deviousness that some routinely resort to here puts the US scandal in the shade writes Catherine Bennett in The Guardian

‘Emily Thornberry hoovered up three precious places at an outstanding part-selective school.’ Photograph: George Cracknell Wright/Rex/Shutterstock


“Dude, dude, what do you think, I’m a moron?” Thus, one of the parents accused of involvement in the US college bribery racket. He’d been warned – by a wiretapped conspirator – not to reveal that he paid $50,000 for his daughter’s fraudulent test results, part of a system the fixer calls “the side door”.

Appropriately soothed – “I’m not saying you’re a moron” – the accused father is recorded, by the FBI, assuring the scam’s organiser that he’ll deliver, if required, the agreed fiction. “I’m going to say that I’ve been inspired how you’re helping underprivileged kids get into college. Totally got it.”

Although many of the best bits of an FBI affidavit – presenting the case against the accused parents – have been widely circulated, this sublime page-turner deserves to be enjoyed in full, if not put up for literary awards pending film adaptation (Laura Dern has been suggested for Felicity Huffman), and made compulsory reading in all admission departments. It’s not just that extracts can’t convey the fathomless entitlement and mendacity exhibited by affluent, ostensibly respectable parents. They can’t begin to do justice to the affidavit’s entertainment value as savage social comedy, something productions of Molière often attempt, but rarely achieve.

Even the dramatis personae, in the investigation the FBI named “Operation Varsity Blues”, reads like an updated Tartuffe: “Todd Blake is an entrepreneur and investor. Diane Blake is an executive at a retail merchandising firm.” Here, too, cultivated, fluent people, many of whom also sound deluded, greedy and hypocritical, appear to be playing with their children’s lives for no reason beyond self-gratification. But the dialogue, when not jaw-dropping, races along (“And it works?” asks a defendant. “Every time.”), the plots and motives are horribly plausible, and the jeopardy is evidently real to the alleged conspirators, even if the all-encompassing irony of their alleged scheme is not. “She actually won’t really be part of the water polo team, right?”

And from a fellow future defendant, on the risks, if this status-enhancing, child-perfecting scam were to be discovered: “You know, the, the embarrassment to everyone in the communities. Oh my God, it would just be – yeah. Ugh.”

Are FBI affidavits regularly as good as the tale of Operation Varsity Blues? If so, the death of the novel should be easier to bear. Although this document has one overriding purpose – to show that accused parents and witnesses colluded in fraudulent applications – special thanks are due to special agent Laura Smith, the author, who never writes a dull page. Maybe the individual cases were fully as compelling as this edited evidence suggests. Or maybe agent Smith’s organisation of her material really does indicate considerable, dry artistry? Either way, you cherish the detail when an accused parent replies, following an allegedly fraudulently extracted college offer: “This is wonderful news! [high-five emoji].”

  Actress Felicity Huffman has been indicted in the university admissions scandal. Photograph: David McNew/AFP/Getty Images

Ditto Smith’s generous quotation from a statement provided for a girl who has been reinvented, apparently for scam purposes, as a “US Club Soccer All American”: “On the soccer or lacrosse etc I am the one who looks like a boy amongst girls with my hair tied up, arms sleeveless, and blood and bruises from head to toe.”

Not, of course, that’s there’s anything illegal, here or in the US, about reproducing personal statements from professional suppliers or collaborating with a teacher and/or parent – the latter, though risibly unfair, is routine. Another Varsity Blues alleged tactic, that of buying a diagnosis requiring extra exam time, may have no exact UK parallel but, according to a 2017 BBC report, one in five children in independent schools received extra time for GCSE and A-levels. David Kynaston and David Green, in a powerful critique of independent schools, recently pointed out various advantages, made possible by high fees: “Far greater resources are available for diagnosing special needs, challenging exam results and guiding university applications.”

If, mercifully, UK universities are low on dependable side doors, the shamelessness of some of the US defendants, as they appear to pursue their imagined birthright (Ivy League bragging rights) can still sound uncomfortably familiar. Many British parents, equally fearful of mediocrity, are similarly unabashed on local tricks and stratagems – not only private education, but house moves, music lessons (for reserved school places), intensive coaching, internships, resits, religious conversions, fake addresses, and, the Times now reports, FOI requests to Oxbridge, from disappointed parents – that will end up, added to financial and cultural capital, delivering much the same outcome as the US scandal. Legal or otherwise, the result is enhanced educational opportunities for the privileged and untalented, fewer for the talented but disadvantaged.

The pervasive cunning is hardly surprising given the official esteem for “sharp-elbowed” parental operators, who, David Laws once argued, set a fine example. It follows, as demonstrated by UK politicians on all sides, that extreme resourcefulness in, say, keeping places from less fortunate residents, is readily passed off as understandable dedication as opposed to insatiable self-interest. Don’t we all want [smiling face with halo emoji] the best for our kids?

Following some unspecified epiphany, David Cameron, of previously wavering faith, secured places at an oversubscribed church school, some distance from No 10, requiring proof of “Sunday worship in a church at least twice a month for 36 months before the closing applications date”. Equally instructively, my own, affluent MP, Emily Thornberry, had, earlier, hoovered up three of the few precious places at an outstanding, part-selective school in Hertfordshire, 13 miles from home, which tradition annually reserves for her Islington constituents. On Twitter, she has reminded critics: “All my children educated in the state sector.” There is no suggestion that either MP has broken any laws.

There must be, beyond legality, some ethically significant factor that makes non-paying wangling infinitely superior to the ugly, US variety. But you probably have to buy a place at Harvard to find out what it is.

Britain’s private school problem

While many agree that private education is at the root of inequality in Britain, open discussion about the issue remains puzzlingly absent. In their new book, historian David Kynaston and economist Francis Green set out the case for change in The Guardian 


The existence in Britain of a flourishing private-school sector not only limits the life chances of those who attend state schools but also damages society at large, and it should be possible to have a sustained and fully inclusive national conversation about the subject. Whether one has been privately educated, or has sent or is sending one’s children to private schools, or even if one teaches at a private school, there should be no barriers to taking part in that conversation. Everyone has to live – and make their choices – in the world as it is, not as one might wish it to be. That seems an obvious enough proposition. Yet in a name-calling culture, ever ready with the charge of hypocrisy, this reality is all too often ignored. 

For the sake of avoiding misunderstanding, we should state briefly our own backgrounds and choices. One of our fathers was a solicitor in Brighton, the other was an army officer rising to the rank of lieutenant-colonel; we were both privately educated; we both went to Oxford University; our children have all been educated at state grammar schools; in neither case did we move to the areas (Kent and south-west London) because of the existence of those schools; and in recent years we have become increasingly preoccupied with the private-school issue, partly as citizens concerned with Britain’s social and democratic wellbeing, partly as an aspect of our professional work (one as an economist, the other as a historian).

In Britain, private schools – including their fundamental unfairness – remain the elephant in the room. It would be an almost immeasurable benefit if this were no longer the case. Education is different. Its effects are deep, long-term and run from one generation to the next. Those with enough money are free to purchase and enjoy expensive holidays, cars, houses and meals. But education is not just another material asset: it is fundamental to creating who we are.

What particularly defines British private education is its extreme social exclusivity. Only about 6% of the UK’s school population attend such schools, and the families accessing private education are highly concentrated among the affluent. At every rung of the income ladder there are a small number of private-school attenders; but it is only at the very top, above the 95th rung of the ladder – where families have an income of at least £120,000 – that there are appreciable numbers of private-school children. At the 99th rung – families with incomes upwards of £300,000 – six out of every 10 children are at private school. A glance at the annual fees is relevant here. The press focus tends to be on the great and historic boarding schools – such as Eton (basic fee £40,668 in 2018–19), Harrow (£40,050) and Winchester (£39,912) – but it is important to see the private sector in the less glamorous round, and stripped of the extra cost of boarding. In 2018 the average day fees at prep schools were, at £13,026, around half the income of a family on the middle rung of the income ladder. For secondary school, and even more so sixth forms, the fees are appreciably higher. In short, access to private schooling is, for the most part, available only to wealthy households. Indeed, the small number of income-poor families going private can only do so through other sources: typically, grandparents’ assets and/or endowment-supported bursaries from some of the richest schools. Overwhelmingly, pupils at private schools are rubbing shoulders with those from similarly well-off backgrounds.
They arrange things somewhat differently elsewhere: among affluent countries, Britain’s private‑school participation is especially exclusive to the rich. In Germany, for instance, it is also low, but unlike in Britain is generously state-funded, more strongly regulated and comes with modest fees. In France, private schools are mainly Catholic schools permitted to teach religion: the state pays the teachers and the fees are very low. In the US there is a very small sector of non-sectarian private schools with high fees, but most private schools are, again, religious, with much lower fees than here. Britain’s private-school configuration is, in short, distinctive.

 

Some of the public figures of the past 20 years to have attended private schools (l-r from top): Tony Blair, former Bank of England governor Eddie George, Princess Diana, Prince Charles, Charles Spencer, businesswoman Martha Lane Fox, Dominic West, James Blunt, former Northern Rock chairman Matt Ridley, Boris Johnson, David Cameron, George Osborne, Jeremy Paxman, fashion journalist Alexandra Shulman, footballer Frank Lampard, Theresa May, Jeremy Corbyn and cricketer Joe Root. Composite: Rex, Getty

And so what, accordingly, does Britain look like in the 21st century? A brief but expensive history, 1997–2018, offers some guide. As the millennium approaches, New Labour under Tony Blair (Fettes) sweeps to power. The Bank of England under Eddie George (Dulwich) gets independence. The chronicles of Hogwarts school begin. A nation grieves for Diana (West Heath); Charles (Gordonstoun) retrieves her body; her brother (Eton) tells it as it is. Martha Lane Fox (Oxford High) blows a dotcom bubble. Charlie Falconer (Glenalmond) masterminds the Millennium Dome. Will Young (Wellington) becomes the first Pop Idol. The Wire’s Jimmy McNulty (Eton) sorts out Baltimore. James Blunt (Harrow) releases the bestselling album of the decade. Northern Rock collapses under the chairmanship of Matt Ridley (Eton). Boris Johnson (Eton) enters City Hall in London. The Cameron-Osborne (Eton-St Paul’s) axis takes over the country; Nick Clegg (Westminster) runs errands. Life staggers on in austerity Britain mark two. Jeremy Clarkson (Repton) can’t stop revving up; Jeremy Paxman (Malvern) still has an attitude problem; Alexandra Shulman (St Paul’s Girls) dictates fashion; Paul Dacre (University College School) makes middle England ever more Mail-centric; Alan Rusbridger (Cranleigh) makes non-middle England ever more Guardian-centric; judge Brian Leveson (Liverpool College) fails to nail the press barons; Justin Welby (Eton) becomes top mitre man; Frank Lampard (Brentwood) becomes a Chelsea legend; Joe Root (Worksop) takes guard; Henry Blofeld (Eton) spots a passing bus. The Cameron-Osborne axis sees off Labour, but not Boris Johnson+Nigel Farage (Dulwich)+Arron Banks (Crookham Court). Ed Balls (Nottingham High) takes to the dance floor. Theresa May (St Juliana’s) and Jeremy Corbyn (Castle House prep school) face off. Prince George (Thomas’s Battersea) and Princess Charlotte (Willcocks) start school.

The statistics also tell a story. The proportion of prominent people in every area who have been educated privately is striking, in some cases grotesque. From judges (74% privately educated) through to MPs (32%), the numbers tell us of a society where bought educational privilege also buys lifetime privilege and influence. “The dogged persistence of the British ‘old boy”’ is how a 2017 study describes the traditional dominance of private-school alumni in British society. This reveals the fruits of exploring well over a century of biographical data in Who’s Who, that indispensable annual guide to the composition of the British elite. For those born between the 1830s and 1920s, roughly 50-60% went to private schools; for those born between the 1930s and 1960s, the proportion was roughly 45-50%. Among the new entrants to Who’s Who in the 21st century, the proportion of the privately educated has remained constant at around 45%. Going to one of the schools in the prestigious Headmasters’ and Headmistresses’ Conference (HMC) still gives a 35 times better chance of entering Who’s Who than if one has not attended an HMC school; while those attending the historic crème de la crème, the so-called Clarendon Schools (Charterhouse, Eton, Harrow, Merchant Taylors’, Rugby, St Paul’s, Shrewsbury, Westminster, Winchester), are 94 times more likely to join the elite than any ordinary British-educated person.

Even if one’s child never achieves celebrity, sending him or her to a private school is usually a shrewd investment – indeed, increasingly so, to judge by the relevant longitudinal studies of two different generations. Take first the cohort born in 1958: in terms of those with comparable social backgrounds, demographic characteristics and early tested skills, and different only in what type of school they attended when they were 11, by the time they were in their early 30s (around 1990) the privately educated were earning 7% more than the state-educated. Compare that with those born in 1970: by the same stage (the early 2000s), the gap between the two categories – again, similar in all other respects – had risen to 21% in favour of the privately educated.

The only realistic starting point for an analysis lies with the assertion that, in the modern era, most of these schools are of high quality, offering a good educational environment. They deploy very substantial resources; respect the need for a disciplined environment for learning; and give copious attention to generating a positive and therefore motivating experience. This argument – the resources point aside – is not an altogether easy one for the left to accept, against a background of it having historically been undecided whether (in the words of one Labour education minister’s senior civil servant in the 1960s) “these schools are so bloody they ought to be abolished, or so marvellous they ought to be made available to everyone”. We do not necessarily accept that all private schools are “marvellous”; but by and large we recognise that, in their own terms of fulfilling what their customers demand, they deliver the goods.

Above all, private schools succeed when it comes to preparing their pupils for public exams – the gateways to universities. In 2018 the proportion of private-school students achieving A*s and As at A-level was 48%, compared with a national average of 26%; while for GCSEs, in terms of achieving an A or grade seven or above, the respective figures were 63% and 23%. At both stages, GCSE and A-level, the gap is invariably huge.

A famous image of school privilege: Harrovians Peter Wagner and Thomas Dyson and local schoolboys George Salmon, Jack Catlin and George Young photographed outside Lord’s cricket ground in 1937 by Jimmy Sime. Photograph: Jimmy Sime/Allsport

There are, of course, some very real contextual factors to these bald and striking figures. Any study must take account of where the children are coming from. Nevertheless, the picture presented by several studies is one of relatively small but still significant effects at every stage of education; and over the course of a school career, the cumulative effects build up to a notable gain in academic achievements.

Yet academic learning and exam results are not all there is to a quality education, and indeed there is more on offer from private schools. At Harrow, for example, its vision is that the school “prepares boys… for a life of learning, leadership, service and personal fulfilment”. It offers “a wide range of high-level extracurricular activities, through which boys discover latent talent, develop individual character and gain skills in leadership and teamwork”. Lesser-known schools trumpet something similar. Cumbria’s Austin Friars, for example, highlights a well-rounded education, proclaiming that its alumni will be “creative problem-solvers… effective communicators… and confident, modest and articulate members of society who embody the Augustinian values of unity, truth and love...”

If, on the whole, Britain’s private schools provide a quality education in both academic and broader terms, how do they deliver that? Four areas stand out.

First, especially small class sizes are a major boon for pupils and teachers alike. Second, the range of extracurricular activities and the intensive cultivation of “character” and “confidence” are important. Third, the high – and therefore exclusive – price tag sustains a peer group of children mainly drawn from supportive and affluent families. And fourth, to achieve the best possible exam results and the highest rate of admission to the top universities, “working the system” comes into play. Far greater resources are available for diagnosing special needs, challenging exam results and guiding university applications. Underpinning all these areas of advantage are the high revenues from fees: Britain’s private schools can deploy resources whose order of magnitude for each child is approximately three times what is available at the average state school.

The relevant figures for university admissions are thus almost entirely predictable. Perhaps inevitably, by far the highest-profile stats concern Oxbridge, where between 2010 and 2015 an average of 43% of offers from Oxford and 37% from Cambridge were made to privately educated students, and there has been no sign since of any significant opening up. Top schools, top universities: the pattern of privilege is systemic, and not just confined to the dreaming spires. Going to a top university, it hardly needs adding, signals a material difference, especially in Britain where universities are quite severely ranked in a hierarchy.
Ultimately, does any of this matter? Why can one not simply accept that these are high-quality schools that provide our future leaders with a high-quality education? Given the thorniness – and often invidiousness – of the issue, it is a tempting proposition. Yet for a mixture of reasons – political and economic, as well as social – we believe that the issue represents in contemporary Britain an unignorable problem that urgently needs to be addressed and, if possible, resolved. The words of Alan Bennett reverberate still. Private education is not fair, he famously declared in June 2014 during a sermon at King’s College Chapel, Cambridge. “Those who provide it know it. Those who pay for it know it. Those who have to sacrifice in order to purchase it know it. And those who receive it know it, or should.”

Consider these three fundamental facts: one in every 16 pupils goes to a private school; one in every seven teachers works at a private school; one pound in every six of all school expenditure in England is for the benefit of private-school pupils.

The crucial point to make here is that although extra resources for each school (whether private or state) are always valuable, that value is at a diminishing rate the wealthier the school is. Each extra teacher or assistant helps, but if you already have two assistants in a class, a third one adds less value than the second. Given the very unequal distribution of academic resources entailed by the British private school system, it is unarguable that a more egalitarian distribution of the same resources would enhance the total educational achievement. There is, moreover, the sheer extravagance. Multiple theatres, large swimming pools and beautiful surroundings with expensive upkeep are, of course, nice to have and look suitably seductive on sales brochures – but add relatively little educational value.

Further inefficiency arises from education’s “positional” aspect. The resources lift up children in areas where their rank position on the ladder of success matters, such as access to scarce places at top universities. To the considerable extent this happens, the privately educated child benefits but the state-educated child loses out. This lethal combination of private benefit and public waste is nowhere more apparent than in the time and effort that private schools devote to working the system, to ease access to those scarce places.

What about the implications for our polity? The way the privately educated have sustained semi-monopolistic positions of prominence and influence in the modern era has created a serious democratic deficit. The unavoidable truth is that, by and large, the increasingly privileged and entitled products of an elite private education have – almost inevitably – only a limited and partial understanding of, and empathy with, the realities of everyday life as lived by most people. One of those realities is, of course, state education. It marked some kind of apotheosis when in July 2014 the appointment of Nicky Morgan (Surbiton High) as education secretary meant that every minister in her department at that time was privately educated.

On social mobility, there has been in recent years an abundance of apparently sincere, well-meaning rhetoric, not least from our leading politicians. “Britain has the lowest social mobility in the developed world,” laments David Cameron in 2015. “Here, the salary you earn is more linked to what your father got paid than in any other major country. We cannot accept that.” In 2016 Jeremy Corbyn declares his movement will “ensure every young person has the opportunities to maximise their talents”, while Theresa May follows on: “I want Britain to be a place where advantage is based on merit not privilege; where it’s your talent and hard work that matter, not where you were born, who your parents are or what your accent sounds like.” Rather like corporate social responsibility in the business world, social mobility has become one of those motherhood-and-apple-pie causes that it is almost rude not to utter warm words about.

Yet the mismatch between such sentiments and policymakers’ practical intentions is palpable. The Social Mobility Commission, with cross-party representation, reported regularly on what government should do, but in December 2017 all sitting members resigned in frustration at the lack of policy action in response to their recommendations.

The underlying reality of our private-school problem is stark. Through a highly resourced combination of social exclusiveness and academic excellence, the private-school system has in our lifetimes powered an enduring cycle of privilege. It is hard to imagine a notable improvement in our social mobility while private schooling continues to play such an important role. Allowing, as Britain still does, an unfettered expenditure on high-quality education for only a small minority of the population condemns our society in seeming perpetuity to a damaging degree of social segregation and inequality. This hands-off approach to private schools has come to matter ever more, given over the past half-century the vastly increased importance in our society of educational credentials. Perhaps once it might have been conceivable to argue that private education was a symptom rather than a cause of how privilege in Britain was transferred from one generation to the next, but that day is long gone: the centrality of schooling in both social and economic life – and the Noah’s flood of resources channelled into private schools for the few – are seemingly permanent features of the modern era. The reproduction of privilege is now tied in inextricably with the way we organise our formal education.
Ineluctably, as we look ahead, the question of fairness returns. If private schooling in Britain remains fundamentally unreconstructed, it will remain predominantly intended and destined for the advantage of the already privileged children who attend.

We need to talk openly about this problem, and it is time to find some answers. Some call for the “abolition” of private schools – whatever that might mean. We do not call for that, because we think it is better – and feasible – to harness for all the good qualities of private schools. Feasible reforms are available; these do not require excessive commitments from the Treasury, but do require a political commitment.

We are, however, under no illusions about the task of reform. The schools’ links with powerful vested interests are close and continuous. London’s main clubs (dominated by privately educated men) would be one example; the Church of England (closely connected with many private schools, from Westminster downwards) would be another. Or take the City of London, where in that historic and massively wealthy square mile not only do individual livery companies have an intimate involvement with a range of private schools, but the City corporation itself supports an elite trio in Surrey and London (City of London, City of London school for girls, City of London Freemen’s school). While as for the many hundreds of individual links between “top people” and private schools, often in the form of sitting on governing bodies, it only needs a glance at Who’s Who to get the gist. The term “the establishment” can be a tiresome one, too often loosely and inaccurately used, but in the sense of complementary networks of people at or close to the centres of power and wealth, it actually does mean something.

All of which leaves the private schools almost uniquely well placed to make their case and protect their corner. They have ready access to prominent public voices speaking on their behalf, especially in the House of Lords; they enjoy the passive support of the Church of England, which is distinctly reluctant to draw attention to the moral gulf between the aims of ancient founders and the socioeconomic realities of the present; and of course, they have no qualms about utilising all possible firepower, human as well as media and institutional, to block anything they find threatening.

The great historian EP Thompson wrote more than half a century ago about The Peculiarities of the English. Historically, those peculiarities have been various, but the most important – and pervasive in its consequences – has been social class. Of course, things to a degree have changed since Thompson’s time. The visible distinctions of dress and speech have been somewhat eroded, if far from obliterated; the obvious social manifestations of a manufacturing economy have been replaced by the more fluid forms of a service economy; the increasing emphasis of reformers and activists has been on issues of gender and ethnicity; and a series of politicians and others have sought to assure us that we are moving into “a classless society”. Yet the fundamental social reality remains profoundly and obstinately otherwise. Britain is still a place where more often than not it matters crucially not only to whom one has been born, but where and in what circumstances one has grown up.

It would be manifestly absurd to pin the blame entirely on the existence over the past few centuries of a flourishing private-school sector. Even so, given that these schools have been and still are places that – when the feelgood verbiage is stripped away – ensure that their already advantaged pupils retain and extend their socio‑economic advantages in later life, common sense places them squarely in the centre of the frame.

Is it possible in Britain over the next 10 or 20 years to build a sufficiently widespread consensus for reform? Or, at the very least, to begin to have a serious, sustained, non-name-calling, non-guilt-ridden national conversation on the subject of private education? A poll we commissioned from Populus shows a virtually landslide majority for a perception of unfairness about private education, indicating that public opinion is potentially receptive to grappling with the issue and what to do about it. The poll reveals, moreover, that even those who have been privately educated, or have chosen to educate their own children privately, are more likely than not to have a perception of unfairness.

The question of what to do about a sector educating only some 6% of our school population might seem relatively trifling, and difficult to prioritise (especially in challenging economic circumstances), compared with say the challenges of quality teacher recruitment across the state sector or the whole vital area of early-years learning. Yet it would be a huge mistake to underestimate the seriously negative educational aspects of the current dispensation and to continue to marginalise the private-school question. The private schools’ reach is very much broader than their minority share of school pupils implies. Unless some radical reform is set in train, an unreconstructed private-school system, with its enormous resource superiority and exclusiveness hanging over the state system as a beacon for unequal treatment and privilege, would make it hard to sustain a fully comprehensive and fair state education system.

Ultimately, the issue is at least as much about what kind of society one might hope the Britain of the 2020s and 2030s to be. A more open society in which upward social mobility starts to become a real possibility for many children, not just a few lucky ones? A society in which the affluent are not educated in enclaves, and in which schooling for the affluent is not funded at something like three times the level of schooling for the less affluent? A society in which the pursuit through education of greater equality of life chances, seeking to harness the talents of all our children, is a matter of real and rigorous intent? A society in which there is a just relationship between the competing demands of liberty and equity, and in which we are, to coin a phrase, all in it together? For the building of such a society, or anything even remotely close, the issue of private education is pivotal, both symbolically and substantively. The reform of private schools will not alone be sufficient to achieve a good education system for all, let alone the good society; but it surely is a necessary condition. At this particular moment in our island story, the future seems peculiarly a blank sheet. Everything is potentially on the table. And for once, that has to include the engines of privilege. For if not now, when?

• Engines of Privilege: Britain’s Private School Problem by Francis Green and David Kynaston is published by Bloomsbury on 7 February (£20). To order a copy for £17.60 go to guardianbookshop.com or call 0330 333 6846. Free UK p&p over £10, online orders only. Phone orders min p&p of £1.99

How to do it: feasible reform options

There are broadly two types of option: those that handicap private schools, making them less attractive to parents, and those that envisage “crossing the tracks” – some form of integration with the state-school sector. Some reforms would have much more of an impact than others.

1. Handicaps

Contextual admissions to universities Where universities, especially the high-status ones, make substantial allowances for candidates’ school background; alternatively, as another method of positive discrimination, some form of a quota system.

Upping the cost Where the fees are substantially raised, making some parents switch away from the private-school sector and opt for state schools. Even though tax subsidies are not huge, the government could reduce them, for example by taking away charitable status (from those schools that are charities) or by requiring that all schools pay business rates in full (as in Scotland from 2020).

Alternatively, something that would “hurt” a bit more, government could directly tax school fees (as in Labour’s manifesto pledge to impose VAT or in Andrew Adonis’s proposed 25% “educational opportunity tax”).

2. Crossing the tracks

There are several proposed schemes for enabling children from low-income families to attend private schools. Mainly, these would leave it to schools to choose how they select their pupils. Some are relatively small in scope, including a proposal from the Independent Schools Council that would involve no more than 2% of the private-school population. Others are more ambitious: the Sutton Trust’s Open Access Scheme proposes that all places at about 80 top private secondary day schools would be competed for on academic merit. The government would subsidise those who could not afford the fees.

In another type of partial integration, schools would select a proportion of state-funded pupils according to the Schools Admissions Code, meaning that the government or local government would set the principles for selection and the extra places would become an extension to the state system. We suggest a Fair Access Scheme, where the schools would be obliged initially to recruit one-third of their pupils in this way, with a view to the proportion rising significantly over time.