Business & Politics

A vicious circle: Companies want influence and tax breaks. Ministers need inside advice. No wonder they do business. And get burnt.

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Vaz faces Commons ban over sleaze

Labour faces fresh questions over 'Enron II'

'Enron II': There's no such thing as a free banquet

'Kenny Boy' to appear before Enron hearing

The sleaze-hunters were moving fast last week. Amid the rubble of the Enron bankruptcy, they detected whiffs of political scandal on both sides of the Atlantic. The search will go on for years, as courts and congressional investigators provide new revelations and open new trails of suspicion. As the whole sorry tale gathers momentum, it will raise questions about the rules of engagement between politics and business.

The week began with the question of whether Enron's £36,000 contribution to Labour funds persuaded ministers to lift a ban on new gas-fired power stations or influenced a decision not to refer Enron's £1.4bn bid for Wessex Water to the competition authorities. "Overheated nonsense" said Downing Street: there had been no significant contact between Enron and Tony Blair or his advisers. And frankly – cynics added – £36,000 is small beer: what minister would give away major commercial advantages for such a paltry sum? Since Enron had also given £20,000 to the Tories, this sub-plot of the saga did not look set for a long run.

It was soon overtaken by what the Daily Mail dubbed "Andersengate". The accountancy group Arthur Andersen, Enron's auditor, is alleged to have overlooked bizarre accounting practices that hid the extent of the company's financial peril, and to have shredded documents. Andersen's British arm also turned out to be a close friend of New Labour.

By Thursday, the spotlight had moved on. Now it was former Tory energy minister Lord Wakeham who was the centre of attention: as an £80,000-a-year non-executive director of Enron and member of its audit committee, he is co-operating in US investigations and has stepped aside temporarily as chairman of the Press Complaints Commission. So both major parties have now been embarrassed by Enron, and both have provided fuel for the argument that the cosy relationship between modern politics and business creates too many moral ambiguities.

But neither is implicated in the scandal to anything like the extent that it threatens to taint George Bush's administration. Enron chairman Kenneth Lay is an old Bush crony and was the largest individual contributor to his presidential campaign. Several senior White House officials were once on Enron's payroll, and two federal energy regulators were proposed for their jobs by Lay. Vice-president Dick Cheney is under pressure to reveal the extent of his links after revelations that he had meetings with Enron before unveiling a new energy policy, parts of which, according to Time magazine, seem to have "sprung directly from Enron's wish list".

Set against this American perspective, the British Enron story is still no more than a sideshow, in which public indignation will subside as soon as the next NHS scandal comes along. But the three British strands of the web – the connections between New Labour and Enron, New Labour and Andersen, and Enron and Wakeham, each raise moral issues which need to be analysed. Some are more troubling than others, but all are symptomatic of the way politics and money have become intertwined over the past two decades, creating pitfalls for the naive and opportunities for the unscrupulous.

Wakeham's case is perhaps the most straightforward. He left active politics in 1994, before he joined the Enron board. Thre was nothing unusual in the fact that he took on a portfolio of directorships – he has 16 of them – to provide comfort for his old age, while continuing to play a non-party role in public life as chairman of the Press Complaints Commission. Nor is there anything surprising in Lords-on-the-board such as Wakeham introducing companies that pay them to the politicians who make policies which affect those companies; that is why Lords are invited on to boards in the first place.

And why should we trust ministers – particularly Labour ministers who may never have worked in the private sector and are by nature unsympathetic to it – to take decisions about energy and trade without listening to the industries affected? And if ministers need extra advice which is both expert and objective, it often makes sense for them to hire outside consultants such as Andersen to provide it.

These points may be obvious to those familiar with the corridors of power, but deeply suspicious to those who are not. As an investment banker in the late 1980s, I was constantly involved in strategies to get closer to ministers, from Whitehall to Warsaw. Usually the solution was to wheel in the ex-Chancellor or the ex-Whitehall mandarins who had been hired by our firm for that purpose. Plum jobs were parcelled out after "beauty contests" in which our record and skills were assessed against our competitors'. But what mattered most was our level of personal access, and our ability to name-drop.

So it is that foreign companies such as Enron – and in a previous Downing Street episode, the giant US supermarket chain Wal-Mart at the time of its takeover of Asda – pull every string to gain access to ministers. Such encounters are unlikely to include anything so crude as a donation cheque and a wish-list of favours, but they are more than just polite tea parties: big companies have jobs and investment to offer; they want planning, regulatory or tax concessions in return. Ministers have to balance potential economic gain against potential political trouble.

And the balancing act becomes more delicate still when the business people concerned happen to be political supporters. As a journalist in the mid-1990s, I interviewed a British industrialist who said: "I've no time for John Major. I offered to go round to Downing Street and tell him how to fix the economy, and he said he couldn't fit me in. We've always backed the Tory party and we're running a bloody big business here. He should have the courtesy to listen to us." Hats off to John Major, in that example, for exercising independent judgement.

No government has ever relied as heavily as Tony Blair's on outside consultants, in every area of policy-making and implementation, nor been so blatant in its reliance on a coterie of businessmen who share its political stance, such as Lord Haskins, the food tycoon, Lord Simpson, the architect of Marconi's decline, and Lord Browne.

In two cases, the Government has shown astonishing naivety in opening itself to accusations of favours-for-cash: Bernie Ecclestone's donation to Labour election funds (subsequently returned) which coincided with a reprieve for tobacco advertising in Formula One; and the Hinduja brothers' sponsorship of the Dome, just at the time that they were busy lobbying ministers for British passports.

Both stories were more damaging to the Government's reputation than anything revealed about Enron and Andersen. But all these cases are symptoms of an evolution of politics in which the risk of a moral lapse is ever present. Business is important, and has a right to be heard; ministers are entitled to the best advice. We are all free to offer financial support to the political party that best represents our interests. But the more whiffs of scandal the sleaze-hunters scent, the louder will be the calls for strict codes of conduct and rules on donations. If politicians do not want to be encumbered, it is up to them to exercise transparent, even-handed judgement in all their dealings with business. Enron may not amount to a serious British scandal, but it is a cautionary tale of which every minister should take note.