Magazine article The Spectator

How Labour Courted the Money Men

Magazine article The Spectator

How Labour Courted the Money Men

Article excerpt

THIS week the great accountancy firm Arthur Andersen finds itself embroiled in one of the greatest financial scandals for a century. One of its US offices faces accusations of malpractice, the illegal destruction of documents, and the failure to spot a massive fraud going on right under its nose at Enron.

But the firm has been here before, though on a much smaller scale. Twenty years ago it audited the books of John De Lorean, the colourful American who conned the British government into setting up a car-manufacturing operation in Northern Ireland. After the company collapsed, the government sued the accountants for negligence.

Andersen was placed on an unofficial Whitehall blacklist while the court case went on. The company was excluded from practically all the privatisation and advisory work handed out by Whitehall departments in the 13 years that followed. It was not till the election of a New Labour government that Andersen was restored to favour.

The story of how Tony Blair and New Labour brought Enron's accountants back in from the cold is an extraordinary untold tale. From being in outer darkness before election day 1997, Andersen was transformed at a stroke into New Labour's favourite accountants, with enviable access to government. Those lucrative government contracts - which the company had been barred from bidding for during the Tory years - at last started to roll in. And within six months of Labour being elected to office, the 13-- year-old De Lorean lawsuit was suddenly settled out of court, with Andersen paying out a tenth of the sum that Tory ministers had demanded.

Andersen marketed its undoubted professional skills to the Labour party in opposition with an intensity and determination that make Enron's own wooing of George Bush's Republicans look half-hearted and amateur. It produced reports, seconded its staff to help Labour politicians and gave policy advice at a very high level. For three years in the mid-1990s Patricia Hewitt, now Trade Secretary, worked as head of research at Andersen's consultancy arm (now called Accenture). After the 1997 general election, Andersen was installed in the heart of government within days, a move that New Labour may come to regret.

The wooing of New Labour began as early as the 1980s. Before the 1992 general election, one Labour trade spokesman told me how Andersen had started to cultivate the party because the Tories had cut it out as a result of De Lorean. He added that it knew that its best hope of winning back government business was if Labour got back in. Even before the 1992 general election the company produced a tax document which was reported as favouring Neil Kinnock's Labour party. There is evidence of links between senior Labour politicians and Andersen. A press report that Kinnock was seen in the Arthur Andersen offices gave rise to rumours that he was set to take a full-time job at the firm. Though this never took place, his press spokesman, Patricia Hewitt, took a senior post at Andersen Consulting.

It was during the 1992-97 period that Andersen made itself most useful to New Labour. It is no exaggeration to say that the firm played a central role in devising all of Labour's key economic policies ahead of that election, except independence of the Bank of England.

Stephen Hailey, Labour party member and managing partner of Andersen's accounting arm, was the key link. He arranged a team to advise New Labour on the imposition of a windfall tax on the privatised utilities. Hailey brought with him Andersen's top auditing partner, Chris Osborne, the accountant Chris Sanger and - most influentially of all - the tax expert Chris Wales. Geoffrey Robinson, a key adviser of Gordon Brown in opposition, makes clear the importance - and the sheer commitment - of Andersen's advice in his important memoir, An Unconventional Minister: `It was a research exercise that would have been inconceivable in the cramped conditions and with the limited resources already stretched to breaking point of the shadow Treasury team. …

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