Oral evidence: The Pension Protection Fund and Pensions Regulator, HC 55

Oral evidence, 15 June 2016.

Witness

Sir Philip Green.

Chair

Sir Philip, welcome. We have a large number of questions to ask, as you will know, based on our evidence. If the questions are not clear I will try to ensure that they are, or if you are going off the point I will try to bring you back, because there is a huge amount of evidence and questions to put to you. I will ask Michelle to open our questions.

Michelle Thomson

Good morning. Thank you for attending our session. As Frank said, the focus today will be very detailed, but before we start I would like to get a sense of you, Sir Philip. You are recognised as a captain of industry. In your view, what is the one key value that has defined you as an individual during your long business career?

Sir Philip Green

I think it is not the right way—to mark your own essay. I don’t think that is probably a good way for me to start. I started from walking the street in terms of learning the industry. When I first started retailing, I used to visit 12 cities or towns on a Saturday, starting at 6.30 in the morning. From 1974, I used to go to Asia once a month and learned how to make the garments. So I have been intimately involved in virtually every aspect of this business over 40, 45 years. I taught myself and never worked with anybody in the industry. Hopefully over this period of time we are here, you won’t hear all the bad stuff everybody wants to keep writing about. Hopefully I will give you a fair and balanced view. If I have done something wrong, I am happy to say, “Hands up—I’ve done something wrong.” You can be your own judge. You know, I don’t tell lies. I will tell you it exactly as it is; anything I tell you, I am going to show you or you can see. I’ve been across, I think, several thousand stores in this country. We are still employing 27,000 or 28,000 people currently. Pre-BHS, it was nearly 40,000 people.

Michelle Thomson

So am I allowed to summarise, then? Would it be a fair assessment to describe your key points as honesty and hard work?

Sir Philip Green

Yes, I think so. I think that, in spite of everything that has occurred, I have been getting quite a lot of messages from BHS people, and if I may, just before we get started, I would like to say a few words, if that is okay with the Committee. Contrary to everything that is getting written, I spent 15 years—nearly a third of my working career—with BHS. Probably the thing that got me into trouble was having too strong an emotional tie with both the people and the business. I think if you went to ask all the people I worked with—and they worked with me, as opposed to for me—at BHS, I think they would all testify that I was honest and hard working. Nothing is more sad than how this has ended. I hope during the morning you will hear that there is certainly no intent at all on my part for anything to be like this. It didn’t need to be like this. I just want to apologise to all the BHS people who have been involved in this and are involved. I hope that by the end of the morning they will hear everything and we can find some sensible solutions to some of the issues.

Michelle Thomson

Your apology is noted. What word is a key value, do you think, that the 11,000 employees and future pensioners would use to describe you?

Sir Philip Green

I’m sorry?

Michelle Thomson

I said, in terms of your key values of hard-working and honesty, what word to describe your key values would the 11,000 employees and future pensioners use, do you think?

Sir Philip Green

Respectfully, I have just said what I said. You can never make—I can’t make everybody happy. There are obviously going to be some unhappy people. I accept that. As I said, by the end of the morning, when we have been through the things we have to go through, hopefully people will hear that that is not the intent and we can find some solutions.

Michelle Thomson

Thank you for that. Moving forward, I wanted to ask some specific questions about the early days of you getting involved with BHS, firstly in terms of dividends. With hindsight, how do you view your dividend policy at BHS?

Sir Philip Green

If we were able to use hindsight, we wouldn’t be here. I think lots of us would be doing different things in life if we used hindsight, but we can’t. Respectfully, if you look at how businesses were financed in those days—the early 2000s—the financing at BHS was extremely conservative. If you go and look at—I am sure we could go and find many transactions—where people used to borrow multiples of EBITDA and four, five, six, seven or eight times cash flow, or how businesses were financed by the venture capital people and private equity, that is how businesses were bought. If you actually look at this business, it did not have more than one times cash flow as debt, so actually it was very conservatively run. I have obviously got a chart of the numbers and we can go through the numbers. I think that you have got to look at the dividends in the context of the cash flow that the business was making and in the context of the profits it was making—

Michelle Thomson

Did you regard your dividend policy as prudent, then?

Sir Philip Green

As I said, we did not exceed one times cash flow. If you go and ask any independent banker or anybody in the venture capital or buy-out business, they would have been saying, “Why are you being so conservative?” It was not an aggressive finance strategy.

Michelle Thomson

Given that dividends paid over the period 2000 to 2014 were 19,738% of profit, compared with M&S at 84% of profit and Primark at 80% of profit—but of course the last dividend was paid in 2004. I am simply using that as a marker.

Sir Philip Green

With respect, we can pick any numbers if you want to make them look disconnected. We have to pick the numbers in line, and respectfully, if we go to a public company that paid x in 2002, 2003 or 2004—you could not have a strategy knowing where you are going to be 11 years later. That is not realistic.

Michelle Thomson

So given that between 2002 and 2004 dividends were roughly double the after-tax profit—they were in excess of profits—would you consider that prudent?

Sir Philip Green

The operating profit—or the EBITDA, as is normally looked at—in 00-01 was £80.6 million. In 01-02, it was £147.6 million. In 02-03, it was £151.5 million. In 03-04, it was £157.8 million. The cash generated from the business was £537 million over those years. Those are the audited numbers. You are giving me some sort of—we can move on from there, but in that period of time, there was £537 million generated.

Michelle Thomson

It may well be that as we go through the people on the Committee today, we get more detail on the numbers. There is obviously a significant interest in this matter among people at home as well. My simple question to you is whether, with the benefit of hindsight, do you view the dividend policy, given the excessive dividends when you do comparatives against other companies, as prudent? Did you regard them as prudent then and do you regard them, looking back, as prudent now?

Sir Philip Green

As I said to you, I think the leverage used on this company was not excessive. The bank debt against the profitability I read you in year 1 was £111 million, in year 2 was £2.2 million and in year 3 was £9.9 million. In the third year, when the company made £157 million, it was £111 million. You can take that to any independent banker or organisation you like and look at those numbers; they are not excessive based on the bank debt versus the earnings.

Michelle Thomson

Did you have any concerns that dividends were still being paid out at the rate they were when the pension scheme was moving into deficit?

Sir Philip Green

I am happy to tackle the pensions any time you like, but I think—

Michelle Thomson

I imagine it is a separate section. We are just looking at the overarching financial governance.

Sir Philip Green

Yes, but I don’t think—if you want to have a separate pension conversation, we can. Let’s stick to the numbers—let’s go through the numbers and then I am more than happy to answer any questions you like on the pensions.

Michelle Thomson

Okay, I think you have answered my question. Carrying on, in terms of property, your company bought a number of properties from BHS for £1.59 million, as a sale and leaseback to another company, called Carmen Properties. Who was the controlling party of Carmen Properties Ltd?

Sir Philip Green

I think you’re using the wrong numbers.

Michelle Thomson

It probably doesn’t matter. Can we agree that a number of properties out of BHS were sold to Carmen Properties Ltd?

Sir Philip Green

What we can agree is that a number of properties were purchased on an external valuation by a company called Carmen, which was a family company, paid for in cash, and the cash was injected into the company, and then they were rentalised on a normal rental basis like any other property would have been. There were no special circumstances; it was a typical, normal sale and leaseback transaction.

Chair

Who did the valuation, Sir Philip?

Sir Philip Green

Savills.

Chair

And you say the money came back to BHS.

Sir Philip Green

100% of the funds were paid to BHS—£106 million.

Michelle Thomson

So what was the point of that?

Sir Philip Green

Again, in those days, these were not abnormal transactions. People used to sale and leaseback real estate in companies. Therefore, that’s what was done. This is not something invented by me; these are the transactions that are done.

Michelle Thomson

I do recall that. But why was it done? That is the question I am asking. You are suggesting that it was very common, but what I am asking is why it was done—for what purpose.

Sir Philip Green

With respect, this was 14 years ago. At the time, somebody suggested that it was a transaction we should be doing, and we did it.

Michelle Thomson

But there must have been a reason. Are you saying that you cannot recall what that reason was?

Sir Philip Green

I don’t know. I think, basically, the company was trading well and it seemed like a sensible transaction at the time. It so happens that since that transaction, through all our other businesses, we have actually not done any other sale and leaseback at all. We still own all the real estate we started with.

Michelle Thomson

Carmen Properties Ltd is registered offshore. Am I correct in assuming that the Green empire, the wider family business, did not pay any tax on the £152 million in rent extracted?

Sir Philip Green

It doesn’t quite work like that, and I don’t think that’s the way we should be going, okay? I think it’s well known—

Chair

How does it work, Sir Philip?

Sir Philip Green

I think it’s well known—I left here in 1998 because of a heart scare, right? And for personal reasons. When I left here in 1998 with my family, we did not own any businesses at all. We were basically business-free. I went to have some time out, okay? Then, when I came back here in 2000, my family—my children—remained out of the country. So the investments were made from overseas. They weren’t assets I took offshore. These were businesses that were bought whilst not being resident here in the UK.

Chair

Your wife and family—you were all offshore at one time while you regained your health.

Sir Philip Green

Yes.

Chair

You came back, but your wife and family remained offshore.

Sir Philip Green

Yes, and my children remained in school overseas for the next 12 years.

Michelle Thomson

That was not the only offshore property company. Mildenhall Holdings Ltd, also a Jersey-based company controlled by the wider Green family, was at another BHS office that this company was created offshore to manage the funding through.

Sir Philip Green

I don’t have any note on Mildenhall.

Michelle Thomson

Do you want me to refresh your memory? Excuse me a minute—I have copious notes here.

Chair

While Michelle is doing that, may I ask you, Sir Philip, why you chose Monaco, rather than other countries you could go to, when you were getting your health back?

Sir Philip Green

To be honest with you, I don’t know. Somebody suggested it. I had actually never spent a day there previously. Somebody suggested it and we went there. I wanted to put my children in school somewhere, and I had two or three choices. We went there, had a look, met the people and decided to stay there.

Chair

When did you find out that it had tax advantages to stay there?

Sir Philip Green

I think it is known. I don’t think that’s a secret.

Chair

Are you saying you knew that when you went?

Sir Philip Green

I’m saying that when I went there, I didn’t ever know—

Chair

No, I accept that—

Sir Philip Green

Let me answer you. When I went there—the lady used the words “with hindsight”—I had no idea that I was ever going to do any more business. I didn’t go there with a plan to start coming back here and working like I worked. I didn’t know how life would turn out.

Chair

But when you started to make a huge amount of money, did you not feel that maybe that was not the best place for you, after realising that it was a tax-free zone?

Sir Philip Green

On what basis?

Chair

On the basis that when you went there, whether it had tax advantages or not did not matter. You did not know what sort of life you were going to have. You came back to this country and became a very successful business person. Did it not occur to you that it wasn’t a suitable base then?

Sir Philip Green

Why would it not be suitable?

Chair

In that you were making your money here and maybe you might be paying your taxes here.

Sir Philip Green

With respect, if you look at our corporate structure, there is a lot of stuff written—I do not want to talk about other companies, it is not my style—but it could have been much, much more aggressive than it actually was. Every single penny the companies have made in the United Kingdom they have paid tax on—they have not been routed through Ireland. The corporate structure has been very see-through and for every penny that was made here, all the tax got paid. If we were looking to set these companies up in a different way, we could have taken all the brands offshore, we could have charged rent—there could have been many different routes if we were actually looking for a route to set up the companies to be aggressive non-taxpayers, but if you look at how much tax the companies actually paid over the period of time, you will find it is pretty substantial.

Chair

We might come back to that a bit later, if we may, Sir Philip.

Michelle Thomson

For your information, Mildenhall Holdings Ltd was registered in Jersey. It was incorporated on 16 February 2005 and dissolved on 13 November 2012. I quote from the accounts, “CS Green and her immediate family” are the ultimate controlling party. The reason I am asking that is that it made £2.8 million in rent on top of £152 million rent extracted through Carmen Properties. Obviously we can see, looking at the accounts, that you paid tax on your UK-based holdings, but in terms of the complexity of your corporate structure, how transparent would you consider the wider group to be—given the number of holdings in Jersey, Monaco and so on? Is that something that you regarded as common as well? Is it more complex than you have seen elsewhere?

Sir Philip Green

I don’t think it is complex at all. Everybody knows that the company is owned offshore. Why is that complex? It is not being hidden.

Michelle Thomson

Going back to the purpose then, my question is that it may well be entirely legitimate tax avoidance—

Sir Philip Green

I am sorry but I do not accept that at all. Some 30% or 40% of the FTSE is owned by non-UK corporations. If we go around the high street and other industries here, there are dozens and dozens and dozens of non-UK investors. Do you want to say every non-UK holder is a tax avoider? I’m sorry: there are people doing business in this country—which are written about regularly, so I am not going to name any names— who are competitors of ours, compete against us and do not pay taxes in the normal course of business.

Chair

It is British Home Stores we are talking about, and the major player in this is your wife, Lady Green, isn’t it? It is not as though it is some sort of foreign entity.

Sir Philip Green

There are a lot of other businesses owned here by people who do not live or reside in the UK. If you don’t want non-UK investors, so be it. I’m sorry, but it is not what I designed or set up—that is the system.

Michelle Thomson

I suppose, coming from that, my question is that in terms of the lack of transparency of the offshore vehicles, it makes the job of tracking funds very difficult. It made the job of tracking funds difficult for me and my supporting team, but it also makes it difficult for people such as the Pensions Regulator, when you do not have the transparency in where all the funding is going. Is that something you accept?

Sir Philip Green

No, I don’t.

Michelle Thomson

So are you prepared to make all the accounts available for the Pensions Regulator in order that they can do that?

Sir Philip Green

Make what accounts available?

Michelle Thomson

The ones that are currently lodged offshore, be it in Jersey—

Sir Philip Green

They are not my accounts—

Michelle Thomson

The Green family accounts.

Sir Philip Green

They are not my accounts. I don’t have any control over them.

Michelle Thomson

So when it says in the accounts “P Green and his immediate family are the ultimate controlling party”, what does that refer to?

Sir Philip Green

I am not the shareholder or beneficiary. I do not have any shares.

Chair

This is your wife then, Sir Philip?

Sir Philip Green

Yes.

Chair

She has the accounts, you don’t?

Sir Philip Green

I have never had an overseas bank account.

Michelle Thomson

I have a couple of last wee questions, because I am mindful of time. In terms of restructuring the group when you got around to doing that, back-office functions were moved into Arcadia. What was the purpose of doing that?

Sir Philip Green

Well, hopefully to find some economies of scale.

Michelle Thomson

Okay. So that is a fairly common thing, in my understanding, but—looking at the P&L breakdown—prior to combining the back-office functions, the expenditure on that was £36.3 million. After it was pulled into Arcadia, it went up to £57.7 million, which was an increase of 58%. If it was designed to save money, what was that about? Can you recall?

Sir Philip Green

I’m happy if anybody wants to meet up with my team that run the back office; that’s not my job. I think you will find that all of the businesses, all the different brands, run off a central charge. They are all charged as if the centre is a provider. I am more than happy—

Michelle Thomson

I understand how that works. Usually it is about—

Sir Philip Green

Let me just finish, if I may. You have asked a question; let me answer it. I am more than happy to provide the relevant people who do the back office to take you through whatever you want to look at of how the costs were charged. I think you will find there was no profit—which is where you are going—made by Arcadia in respect of any third-party charges made to BHS. Right? That’s what my team have told me. I am more than happy, if you want that information made available to you, for you to see it. There is no problem. [Interruption.] Sorry? There is no problem with that.

Chair

We will ask you and follow up on that. Thank you.

Michelle Thomson

Finishing off the point about looking for a sale—

Sir Philip Green

If I may, before you continue, with respect. Coming from outside looking in, unless you are inside the business yourself, the types of figures you are trying to look at without somebody internally taking you through would be very difficult for anybody outside to understand how those numbers come together. Because then we started to do other functions. But as I said, I am more than happy to provide my accounts team who will take you through it. There is no issue with it. What I am saying is that there is zero profit. So everybody wants to keep writing, thinking that we gained: we did not. I am told by my team that that service was provided below cost.

Chair

We’ll come back to you on that, Sir Philip.

Sir Philip Green

There’s no problem. We are happy to provide it.

Chair

Thank you very much.

Michelle Thomson

Just to finish off the point about looking for a sale. What was the point at which you started to think about selling BHS? When did that first occur?

Sir Philip Green

I would say probably ’14.

Chair

2014?

Sir Philip Green

Yes.

Michelle Thomson

So the talks you had reported with Asda and Debenhams in 2005, and with the Icelandic—

Sir Philip Green

Sorry?

Michelle Thomson

Asda and Debenhams, and the Icelandic retailer Baugur in 2007—the talks you had about the sale of BHS.

Sir Philip Green

I don’t think Baugur were in business still then. From time to time, there could always be somebody who phones up and it could be a brief conversation. There was no thought process—there should have been, maybe, as it would have saved a lot of aggravation.

Michelle Thomson

For the record, so that I am clear. Are you really saying that there was no serious attempt to sell BHS before 2014, and the talks that were held in 2005 were simply a speculative phone call?

Sir Philip Green

As I said, there was no serious proper dialogue had about making a disposal. Nobody turned up with anything that was serious. As I said, I wish they would have done, but we are here.

Jeremy Quin

Sir Philip, good morning. There is just one point. Michelle was talking about—

Sir Philip Green

I apologise. If I may, Michelle, there is something we did not finish, which I asked about yesterday just to make sure we don’t get lost. You are just focusing on the first four years of the business. Let’s just spend five minutes, if we may, on the rest of the numbers. Otherwise, the story is very easy to get mispresented, alright? Certain things have been said by other people here who have come to this Committee that actually do not fairly reflect what did happen.

Chair

Is that what we have already said, Sir Philip? Because there will be lots of opportunities for you to correct the record.

Sir Philip Green

No, this will take three or four minutes, but it will fill in the total picture so it is represented what I believe is fairly. Okay? Things have been said that do not reflect what occurred. In the following years, which has been reflected as saying we did not invest in the business, ’04-’05, ’05-’06, ’06-’07, ’07-’08, ’08-’09, we invested £254 million of capital in the stores. The other day I think it was represented here that we didn’t invest any money at all, but we did invest £254 million. Post ’09—it has been widely written about—when the business came into Arcadia, Arcadia lent to BHS on an unsecured interest-free basis, which is highly unusual because most entrepreneurs would have strapped all the assets down and taken everything for their own, which we did not. We lent £256 million on an unsecured, interest-free basis over the next five years. In addition to that, we invested a further short £100 million in capital. So that’s before we get to, which I’m sure we will cover, the disposal. We put £250 million of capex, we lent £250 million and we invested a further £100 million in capex. So there is £600 million that we have got invested in the business, post the dividends, before we get to the disposal, where I think the other day you were battling to sort out the balance sheet that was sold. But if we waste the last two minutes on that—

Jeremy Quin

Don’t worry about that, Sir Philip. I will come back to it.

Sir Philip Green

No, we can just finish this. This will take one minute. I’m just saying this so you’ve got all the numbers. We then left a balance sheet—I know you were struggling the other day to work out the numbers—

Jeremy Quin

I think Mr Chappell was struggling.

Sir Philip Green

Well, okay. Anyway, between you. I can show you, anyway. There was £80 million-odd. There was £100 million of assets left in the company unencumbered when it was sold. So if we add all of that up, there is nearly £800 million in one form that went back into the business post ’04. Just so we didn’t get stuck at ’04, we put all the money back, plus a lot more.

Chair

Okay. Jeremy, let’s take some.

Jeremy Quin

If I may come back to one point, Michelle was talking about cash extraction. It is all completely transparent and it is in Taveta Investments Ltd every year since 2009. Just to confirm, Taveta is still paying Lady Green for the acquisition of BHS, isn’t it?

Sir Philip Green

Yes.

Jeremy Quin

Twenty million a year is the payment. So there is £200 million paid with interest to the acquisition of BHS by Arcadia. That is the £20 million charge that goes out every year to Lady Green. So last year, Arcadia sold BHS for £1, but it still paid £20 million to Lady Green for its prior purchase. In the last accounts, there is £108 million still to pay. Just for the record, that is still the situation, is it?

Sir Philip Green

If you say so. I don’t know.

Jeremy Quin

I’m sure you do.

Sir Philip Green

I don’t.

Jeremy Quin

Well, you signed off on the accounts, so I’m sure you do.

Sir Philip Green

I didn’t sign anything off, okay?

Jeremy Quin

But you’re a director of the company.

Sir Philip Green

I don’t sign the accounts.

Jeremy Quin

But you’re a director of the company that okays the accounts. Thank you. That’s all.

Amanda Solloway

Like yourself, I was just reflecting. You were saying you’ve spent 15 years of your life doing retail. I have been nearly 40 years in retail, so it is a long time. I love retail, so I would like to get back to the retail side. When you first purchased BHS, what were your plans for it?

Sir Philip Green

The people I bought it from had lost interest or—I don’t know—lost their way with the business. Actually, it is about 40 years; 15 was BHS, so I can keep up with you. Basically, I think all these things that I said earlier stemmed from the product side. I think the buying was poor; the sourcing was pretty poor; there wasn’t really an owner-driver driving the business. I worked pretty long hours going through each of the areas of the whole business, department by department, to understand what was working and what wasn’t working. I didn’t know any of the people in the building; they were all new to me. I hadn’t been in the building before. I think I’d been in there once before acquisition, so I didn’t know any of the staff, so you have to start to get to know the people. Coming back to something Michelle said, when you buy businesses from public companies or you buy public companies, the people have to trust you. Therefore when you get into these businesses, as a starting point you’ve got to get to know all of the people, because you’ve got to work with them. Therefore, when you get into these businesses, as a starting point you’ve got to get to know all the people, because you are going to work with them. I think we’ve got a pretty good track record as a company. In our existing business, the average stay in our head office is 11 or 12 years. Sir, do you mind not looking at me like that all the time? It’s really disturbing. [Interruption.] Sorry? You just want to stare at me? It’s just uncomfortable, that’s all.

Richard Fuller

I wasn’t quite just staring at you, but I don’t wish to make you uncomfortable.

Sir Philip Green

Sorry?

Richard Fuller

I don’t wish to make you uncomfortable.

Sir Philip Green

No, but I’m just saying. It isn’t somebody else; it’s just uncomfortable, sort of staring at me.

Amanda Solloway

So, to get back to retailing, I am intrigued about what the plans were in order to rebrand. Did you have an idea? You were talking about maybe relaunching it again. Did you have any plans in terms of how to take it to even greater profit?

Sir Philip Green

I don’t think it’s about—when starting out on the track with these things, I’ve never sat down and worked a profit track. It’s, “What have we got to do to make it work?”, and if we make it work, we make money. I don’t think I’ve ever sat down with any of the businesses that I’ve ever looked at—I’ve looked at what happens if it goes wrong, as opposed to what happens if it goes right.

Amanda Solloway

Right.

Sir Philip Green

And this looked like it needed a lot of work doing. As I said, I have experience of going to Asia, so was able to reopen the supply chain and sort the supply chain out. Really, over the first quarter, I looked at virtually every piece of product across every department in the business, started to familiarise myself, go to all the product meetings and start from the ground up, working the business.

Amanda Solloway

So as an example, you mentioned the £800 million investment that you made over the, I guess it was, 12 years?

Sir Philip Green

Eleven years.

Amanda Solloway

Yes, 11 or 12 years. Also, I suppose counter to that, there were ways of streamlining, which we have talked about. How did that investment translate into the business? What kind of things were you doing?

Sir Philip Green

As I said, in ’04-05, we spent £37 million on capex, looking to improve the stores. In the following year we spent £84 million. As I said, it’s a long way back, but obviously we thought we had some things. We opened stores, we were increasing staff numbers—we didn’t reduce staff numbers. Now, obviously the discount was becoming more powerful online—it was very early days, when it was just starting, and maybe we were or weren’t quickly into that. All of these things have eaten into the mainstream market place, as I am sure, if you are a retail lady, you will know.

Amanda Solloway

That is why I am so fascinated by it. That accounts for, say, 100,000. What kind of things were you investing in with the other 600,000 or 700,000? I used to go to BHS, and I am just trying to—

Sir Philip Green

Obviously, with all these businesses you are investing to improve, for better or for worse. In 2002, when we acquired Arcadia, which basically took our total UK portfolio to about 2,300 to 2,400 stores, there was quite a lot more to do. Basically, my time got split. Where all my time prior was only in BHS, after that my time got split—maybe too big a bandwidth—because all the business needed a similar piece of work doing. There was a lot to do.

Amanda Solloway

I think we heard earlier that you were quite hands on, in terms of a vision. What you are saying is that probably, with the involvement in Arcadia, that took more of your time.

Sir Philip Green

Just that my time got split—not an excuse, just a fact. It’s not easy to find great people to run these businesses. It’s not easy to find world championship chief executives or people to operate the business. We tested a few people along the way, but there was a very loyal staff base and everybody was trying hard. As I said, there was a long stay of people staying in the jobs. Maybe the business didn’t change; it got caught in that real mainstream.

Amanda Solloway

I guess it is that unique selling point that I am thinking of, but at what point did it become clear to you that it wasn’t going to be the success that you had hoped at the start?

Sir Philip Green

I think after the discussion in ’09, when it came into Arcadia and we started to inject in some of the Arcadia brands to trade inside the space, it looked like possibly that could be a changing format for the business and help bring more people through the doors. We had successfully done that in other department stores, where we took space in other people’s department stores with our brands, and possibly that could be a start of something fresh. In a much later stage, we introduced food. The business always had food user. The way the food market was developing—I had had many conversations with different supermarkets, to see if maybe we could take one of the food retailers in, but they were all running off with their own expansion.

Amanda Solloway

The sites, is it fair to say, were often secondary sites?

Sir Philip Green

I think—using your colleague Michelle’s words “with hindsight”—unfortunately the underlying portfolio, even before we bought it, had some very poor property deals done over the years. It had leases signed that were 40 to 50 years and were too expensive. In the early days, we made them work. If I can just gallop forward to what happened, which we will come to, when they did the CVA , I think 45 landlords agreed to take a 75% drop in rent, and voted for it. That will give you some idea. Those 40 to 45 stores were representing £30 million or £40 million of loss. That block just started to erode the business. It was just too expensive—wrong location, too expensive.

Chair

Sir Philip, Michelle made a point earlier on about the first moves made to you to sell. From what you have just told Amanda about your difficulty with moving BHS into new territory after 2005, that would have been a good time to sell, wouldn’t it, in retrospect?

Sir Philip Green

Well, if we are allowed to use hindsight, 2002 would have been a good time to sell it.

Chair

We might come back to that, and the timing of that, a bit later, Sir Philip.

Amanda Solloway

Just following on from that, so that I am really clear, following the acquisition of Arcadia, I think we have heard that some services were paid for. Just explain to me how BHS was linked to Arcadia.

Sir Philip Green

To be honest with you, so we don’t have any accidents, I am more than happy for whoever wants to go and see it to see the relationship between the back office—I don’t want to discuss it, because it is not my forte. I don’t have that detail here to be able to explain line by line. I would much rather get my back-office team or my finance team to sit with you, and they will happily go through it with whoever wants to. You can see all the numbers line by line. There is no problem. But I can’t get into that, because I might give you some wrong information and I don’t want to.

Amanda Solloway

I think it was just a flavour of whether the two were interlinked or not.

Sir Philip Green

The answer is that it was a service provider. Outside of taking space in the stores, which it paid for, it was a service provider. Like I said, I am happy to provide you with any detail you want in relation to those services and how they were judged.

Amanda Solloway

That would be things like human resources, finance—

Sir Philip Green

Everything. It ran the finance, it ran back office, it ran IT, it ran online, everything—all the back office. Like a third-party provider.

Amanda Solloway

In your mind, was it no longer a viable retail operation? Is that what made you decide to—

Sir Philip Green

I think it was a combination. Probably we had let it run too long. We had put a lot of money into it already and felt that our efforts in terms of—we’re operating a business with 27,000 people across 30 countries, and the 27,000 people are purely UK, right? We’ve got shops across 30 countries. Across the group, there are probably 3,000 stores. It’s a big day job. I think it was just decided that we had invested enough money and we would try and find a solution.

Chair

Let’s move on from there. Thank you. Richard.

Richard Fuller

Sir Philip, I think it is another parliamentary colleague who is known for his death stare, so I am sorry if that unnerved you, but I learned in my previous career in business, and also in politics, that if you are doing something important, you should look someone straight in the eye.

Sir Philip Green

Now we’re talking; we can look at each other.

Richard Fuller

Thank you for that. Why do we have companies? What is the goal and the aim of having companies?

Sir Philip Green

You tell me.

Richard Fuller

I asked you the question. You are a businessman.

Sir Philip Green

I don’t really understand the question, sorry.

Richard Fuller

What is the purpose of having a company?

Sir Philip Green

To run a business.

Richard Fuller

Is it to make money? Is it to employ people? Is it to do something creative? What, in your view, is the purpose?

Sir Philip Green

I think it is a combination of many things. I don’t think it is any one thing.

Richard Fuller

Okay. Can I go to numbers? Perhaps we can get some comfort on that. I am using the numbers—I think I got them correct—that you talked about for the period from 2000 to 2004. You said £537 million in cash was generated over that period.

Sir Philip Green

That is the EBITDA number I have.

Richard Fuller

I think you quoted the EBITDA, and then you said cash.

Sir Philip Green

EBITDA is normally cash.

Richard Fuller

Is it correct that, over that period, £414 million was paid out in dividends?

Sir Philip Green

I have £423 million.

Richard Fuller

I have £423 million actually, I think.

Sir Philip Green

That was just a trick question, then.

Richard Fuller

Well, I tricked myself.

Sir Philip Green

To see if I was paying attention.

Richard Fuller

Over that period, £102 million of debt was repaid, and then you re-levered the business.

Sir Philip Green

As I said, over the period of the four years, the business started with £111 million of debt. In ’01-02, it had £2.2 million. In ’02-03, it had £10 million in the bank. In ’03-04, it had £111 million of debt.

Richard Fuller

So you were paying off debt, essentially, weren’t you, over that period?

Sir Philip Green

Well, as I said—

Richard Fuller

Let me see if I’ve got it right. I know you’ve got it right; let’s see if I’ve got it right: £537 million of cash was generated by the business, and £414 million was taken out in dividends—

Sir Philip Green

£423 million.

Richard Fuller

£423 million. £102 million of debt was repaid, leaving £21 million net of cash generated—or probably less than that now.

Sir Philip Green

Actually—sorry—it has on my sheet here that dividends were declared at £423 million, but there was £380 million paid.

Richard Fuller

So £537 million of cash in, £380 million of dividends out, and how much debt was repaid?

Sir Philip Green

Over what period?

Richard Fuller

Over that period: 2000 to 2004.

Sir Philip Green

Sorry?

Richard Fuller

You re-levered the business subsequently. My point is—

Sir Philip Green

I gave you the four years. £111 million, £2.2 million debt, £10 million in the bank, £111 million deficit.

Richard Fuller

I just want it correctly, because the impression that may have been conveyed was that this was a very cash-generative business, and there was enough to leave cash in the business, but the truth of it is that most of that cash was taken out of the business, wasn’t it?

Sir Philip Green

No, that is not correct, because we spent £70 million of capex. We paid £80 million in corporation tax.

Richard Fuller

How much money was left to re-invest in the business, after corporation tax? Was it £70 million?

Sir Philip Green

I am saying that there was £70 million of capex. There was £80 million of corporation tax paid, and everything else that it costs to run the business.

Richard Fuller

And £380 million in dividends.

Sir Philip Green

Yes.

Mr Wright

Sir Philip, can I just ask: why the difference between £380 million, actual dividends, and the £423 million?

Sir Philip Green

That is the number I have on my sheet.

Richard Fuller

Maybe Iain will want to come back to that. Can we now move to the period that Amanda was talking about, which is the later period?

Sir Philip Green

Sorry, if I may, Mr Wright, if any of the numbers need re-clarifying, that is not a problem. I am just saying that I am reading you the numbers they gave me. These are the numbers it says here for dividends declared and dividends paid. That is what I have on my sheet.

Chair

Who is “they”, when you say, “These are the numbers they gave me”?

Sir Philip Green

My finance team.

Chair

Thank you.

Sir Philip Green

Regardless of how we end, I think you should come and visit our building. We have 1,500 or 1,600 people working in central London. We have 27,000 people. It is a very, very, very, well-run machine that produces very accurate—and you are more than welcome, if you want to come and visit and see. This is not made up. There are a lot of people doing this every day.

Chair

Sir Philip, we will happily do that. It is just that every witness we have had up to now has presented the image to us that you are the guy who calls the shots. I am pleased to hear about the team—

Sir Philip Green

You can’t run 3,000 stores with one person. Let me just say this to you—and please, you can write this down. I have never made or moved one penny from any bank account of our company, and I wouldn’t even know where to phone to actually get any money out of our bank. I don’t sign for money. I don’t deal with it. There is a process in the company on a day-to-day basis where there are a lot of people who have accountability and responsibility and are allowed to act. While we are sitting here during this session in the next four hours, there will probably be people in our building writing anything between £50 million and £100 million of purchase orders that they do not need sign-off on. That is their job—that is the day job. In these big businesses, you actually have to allow people the freedom to operate, and that is what happens in our business. We have a competent finance team. Each of the businesses has its own finance director, its own managing director and its own HR director, and they are run as independent businesses that have to produce proper data, otherwise we could not survive.

Chair

This is obviously the problem that Mr Chappell came up against, isn’t it, Sir Philip?

Sir Philip Green

What’s that?

Chair

You were saying that you wouldn’t know how to take money out of the company. He actually wanted to do it all the time and was told that he shouldn’t. He seemed to try to destroy your system immediately, and got into trouble for doing so.

Sir Philip Green

That’s a different conversation.

Chair

It is indeed.

Richard Fuller

On the second bit of the questions that my colleague Amanda was asking, you talked about £254 million of capital invested over the period 2005 to 2009, £256 million lent unsecured and interest-free, and another £100 million of capex. It didn’t seem to do any good, did it?

Sir Philip Green

Unfortunately no, but—

Richard Fuller

You are supposed to be the supremo of retail. Why were you not able to make any difference?

Sir Philip Green

If it was easy, everybody would be doing it.

Chair

That is why you had the title, Sir Philip. You did know and people trusted you to know. You were called the king of retail. You were only the king because the others didn’t know how to do it.

Sir Philip Green

As I said, if you look at retail business across the high street—Amanda here said she has been in the retail business a long time—you get good years and bad years. The market has changed. The online market in 2002, 2003 and 2004 virtually didn’t exist; today, it is billions of pounds.

Richard Fuller

But other companies managed to modify and change their business models, even those that were more exposed to online retail than your own business.

Sir Philip Green

Okay. Without wishing to be rude, maybe in your next career you should try retail.

Richard Fuller

I don’t think I’d be very good at it, to be honest, but then I know that. On Arcadia Group, you mentioned, again in answer to my colleague Amanda, your time being split. On the Business Select Committee last week, we had Mike Ashley, who used the metaphor or analogy—I am not sure which it is; I apologise—that he started off in an inflatable dinghy and it suddenly became an oil tanker and perhaps it was too big for him. Is that what happened with you?

Sir Philip Green

I think basically there are two different pieces, without making any excuses. Structurally, as I said, BHS was in the wrong shape in terms of the types of leases and the types of stores. Some of the space was just too big. They are very, very expensive to modernise. You’re talking 40,000 or 50,000 feet, so if you really want to go to town, it could be £3 million, £4 million or £5 million a building. The economics in this marketplace of doing that were not right. If it would have been possible, and if you had said to me, “What would have been your term?”—you’d have wanted to downsize this a few years ago.

Craig Mackinlay

Picking up what Michelle started with about the early days, when you first took over BHS, you said that the funding structure that it had was fairly conservative compared with other businesses. We then discussed the sale of a number of the properties to Carmen—this offshore entity that was owned by your family. That was a big transaction. You say you have got a big team behind you who do all the nuts and bolts, but whose idea was that transaction? Was that your idea or did it come from one of your professional advisers, which a company of this size might have had?

Sir Philip Green

I honestly don’t remember. I don’t know.

Craig Mackinlay

It is a big transaction.

Sir Philip Green

I don’t remember. In those days the banks were fairly active in this type of—this wasn’t an abnormal trade.

Craig Mackinlay

Would it have been that one of your bankers or one of your advisers would have gone, “Sir Philip, you really should be doing this. What do you think?”

Sir Philip Green

The answer is that it could have been. I don’t know. I don’t want to pass it to somebody else. I don’t remember—it was too long ago.

Craig Mackinlay

Obviously that transaction—when the properties were sold—would have created a profit in the BHS accounts and that profit would have been distributable, so some of that profit probably formed part of the dividends that you received thereafter. Would that be a fair assessment?

Sir Philip Green

I don’t think that is the case. I think the actual profit, from a number I saw somewhere—it was a small number. I think the profit for BHS itself, from the historical base, was £10 million or £11 million.

Craig Mackinlay

Thereafter, of course, the rent paid by BHS would have gone to Carmen offshore. That is just how it would have worked.

Sir Philip Green

It would have gone to the landlord.

Chair

When we are looking at the profits generated and taken out, Sir Philip, our audit trail seems to suggest that your wife, quite a legitimate owner, is offshore. Does she share those accounts with you at all?

Sir Philip Green

Which accounts?

Chair

The accounts for her company, into which quite a lot of these profits were paid. Do you ever look at them?

Sir Philip Green

No.

Chair

You don’t. All right, thank you. Let’s move to the pensions.

Ms Buck

We are going to ask you a number of fairly specific questions about the pension fund. I would like to concentrate on the earlier years in particular. How would you describe the course of the BHS pension fund under your stewardship?

Sir Philip Green

There are three different pieces. Going back to your colleague’s thing of hindsight, the reality is that, if the world were perfect, they should have spoken to us about dealing with this on day one, or even our auditors should have spoken to us about dealing with it on day one, and we wouldn’t be here, but we didn’t.

Ms Buck

When was day one?

Sir Philip Green

When we bought it. At that time it could have been dealt with. Rightly or wrongly—I don’t know how it works in other companies—the trustees are very, very independent from the company. I would say that the lady you met here, Margaret Downes—if I met her three times in 10 years that would have been a lot. Three or four times is all I ever saw her. We never had any meetings with her. You are looking puzzled, but those are the facts.

Jeremy Quin

I just recall hearing her say that she did meet you and you produced helpful ideas.

Sir Philip Green

No. I saw her in 2008/09 when the market and world changed, just to try to understand what sort of investments, where they were and what sort of safety, but I was not involved ever from day one. Whether it is just our company, I think that probably the disconnect and the total self-contained pension team—trustees and all the people who looked after the pension were totally self-contained from us. They didn’t meet us, they didn’t discuss their strategy with us and we were not involved in any way, shape or form in what they did.

Chair

On day one—if we are talking about day one—it was in surplus.

Sir Philip Green

Day one was a long time ago. Sorry, Jeremy, you are looking a bit puzzled.

Jeremy Quin

No, Sir Philip, I am sure your recollection is correct. I just seem to recall—maybe my recollection is at fault—Margaret Downes saying that you sort of helped with their investment strategy. I was puzzled about that at the time.

Sir Philip Green

No. I had one—maybe two—discussions with her. I was never involved at all, ever, in what they did and where they invested. I was not a part. I was never a beneficiary, didn’t get involved—maybe I should have done. Maybe the disconnect is another reason we’re here, right? She’s a lovely lady, but what I would like you to look at some time—we should send it to you, because I don’t have it with me today—is that there were very, very substantial fees paid to advisers. I think that in the early days I recall seeing a figure on a sheet of about £650,000 paid to pension advisers, and by 2005-06 that was north of £1.5 million. It’s a sheet that maybe you could have a look at, but I have not got it here. I’m not blaming her, but there were very substantial moneys paid to third-party advisers, which grew. I remember that at one point it grew to over £2 million a year to whoever they were paying. It was nothing to do with us—nothing recommended from us at all.

Mr Wright

That was a waste of money, wasn’t it?

Sir Philip Green

Your words. All I’m saying is that sadly nobody ever came to us and said that we should be doing that. I am happy to take both ways, but I’m saying that there wasn’t the right dialogue and there wasn’t the right communication. If there was, we wouldn’t be here.

Chair

Who do you think is responsible for the deficit, then?

Sir Philip Green

I think that’s a sort of—

Chair

You aren’t trying to blame Margaret, are you?

Sir Philip Green

I didn’t say that, did I?

Chair

No, sure.

Sir Philip Green

I think I may have taken particular—what I am saying is that there was a combination of poor communication on both sides. She had a lot of advisers. None of them ever came to see us and said, “Here’s a way you could do this. We could do a buy-out, we could do something.” That never came to the table. I am happy to say that we should maybe have had that, but it didn’t happen. I’m not blaming anybody, I’m just saying that conversations or communications that maybe should have happened did not happen.

Ms Buck

Just for the record, you believe that you met the trustees three times over the course of that period.

Sir Philip Green

Let’s put it this way: what I would rather say to you—because somebody will come back and say it was five—is that there were very, very, very, very few conversations or discussions with any of the trustees.

Ms Buck

That is speaking for you an individual, but are you also speaking for your chief operating officer and for you as a company?

Sir Philip Green

I don’t believe that any of our operating—I don’t think they were—

Ms Buck

When Paul Coackley was writing—this is a little bit later—in response to letters from Margaret Downes in 2006, he said, “The company keeps the pension arrangements under frequent review”. What does that mean?

Sir Philip Green

He was the finance director. Whatever conversations he was having, I was not involved in. I’m not blaming him, but I wasn’t involved in them.

Ms Buck

No, I’m just trying to understand the distinction between you as an individual in the company, and the chief operating officers, who were presumably acting on your behalf within the company.

Sir Philip Green

I think that everybody has this sort of impression, so let me try one more time. You can’t run businesses of this size doing everything yourself. You have other people doing their job. I can’t tell you every single conversation I had with everybody. I’m just happy to look you in the eye and say to you that I was not actively involved in pension conversations. Maybe if I had been, we all wouldn’t be sitting here, but I wasn’t, and however and whatever we are here. We could spend all week if you like, but we can’t trade backwards. We can trade forwards.

Ms Buck

We can’t, but we also do need to understand what happened at the time.

Sir Philip Green

Okay, and I am just saying to you on a personal level—

Ms Buck

You were explaining what happened to the pension fund under your stewardship. You would say that poor two-way communication was one thing.

Sir Philip Green

I would say so, yes.

Ms Buck

And there were others. Were there others?

Sir Philip Green

No.

Ms Buck

Okay, so poor two-way communication. Do you recall what the pension fund situation was when you took over, at the beginning, in 2000? I understand that there was a £43 million surplus in 2000. Do you recall what the state of the pension fund was in 2006, after the years in which, as we already heard, there were very substantial dividends taken from the company?

Sir Philip Green

I don’t think that’s very fair. I think, with due respect, as I’ve just told you we put back £750 million. Everybody wants to ignore that. You go and find anybody else—please find somebody who lends £250 million, doesn’t seize all the assets, and lends it interest-free. It doesn’t happen. Having got it wrong, we tried to get it right by reinvesting. That didn’t work. Okay? We didn’t run away. What I would like to do, if I may, so we can maybe fast forward a little, I have two letters with me, or three letters—

Ms Buck

Do you mind if we return to that? It would be helpful—

Sir Philip Green

I’m going to talk to you about the pension.

Ms Buck

I just want to talk through the sequence of events that happened in the early years. To be clear, you are not disputing that we went from a £43 million surplus to a £7 million deficit.

Sir Philip Green

Ma’am, can I just say to you that I was not in charge at any point of the pension fund. I was not a trustee, I was never in the room. With respect, why did Margaret Downes not come to see us when it was £43 million surplus and say, “Let’s sell it to an insurance company”?—she had all these advisers—and then we wouldn’t be here. She didn’t.

Michelle Thomson

Are you not ultimately accountable? You may not be responsible on a day to day basis, but surely you are ultimately accountable for overseeing all of the businesses that you are the head of, and that included the pensions fund.

Sir Philip Green

Where is this conversation taking us?

Michelle Thomson

I am just trying to point out the difference between accountability and responsibility. Responsibility is the day-to-day detail, but who ultimately is accountable?

Sir Philip Green

I think we are sort of jumping—like the Olympics, they’ve just put the bar up and now you want to jump 12 feet. Do you want to go to the pension issue? I am happy to debate it. [Interruption.] Mr Field—I am saying I am happy at whatever point you want to come to it, but I think it is unfair or unreasonable to attack me without letting me be able to respond. I have letters and I am happy to debate the pension. I am not running away; I am sitting here. You tell me I’m accountable. Let’s come to debate the pension issue—

Michelle Thomson

Well, if you’re not, who is?

Sir Philip Green

I’m sorry—Mr Field, am I able to respond?

Chair

You are; Karen has a question. It is just slightly surprising for me and maybe others, Sir Philip, that everybody who has come has said you are this great figure—a Napoleon figure—and I am slightly shocked in that you are telling us you are not this figure—all these people got it wrong. You didn’t really make all the big decisions. This terrible pension deficit stole up on you, and while you should have noticed it, you didn’t. We are just acclimatising ourselves to the different image of you.

Sir Philip Green

Fine, but what I also want to make sure what we leave here with—instead of me keep reading on a daily basis all this nonsense that everybody keeps writing—is that I have not run away. I haven’t tried to run away, and hopefully I will satisfy you that all this press I’m reading every day is just really outrageous and pretty rude. If we get to the facts, they won’t have anything to write about any more.

Chair

Karen, the question is with you.

Ms Buck

To go back, we agreed that the pension fund went from a £43 million surplus to a £7 million deficit. At the point that that deficit was emerging—this was, as we have heard, around the same time that you were taking the dividends, and indeed there was an employer contribution holiday in the time of that pension fund—the trustees were making representations to BHS to support the scheme. That is in Margaret Downes’s letter in late 2005. Do you recall what the response was?

Sir Philip Green

No, I don’t recall at all. I was not involved in that. I don’t know.

Ms Buck

You were not involved.

Sir Philip Green

No.

Ms Buck

Do you know whether you/BHS rejected requests for securities and proposed reductions in support of the contributions during the time that that deficit was growing in the second part of the decade?

Sir Philip Green

No.

Ms Buck

So you had no knowledge of what was happening to the deficit or to the pension fund.

Sir Philip Green

I’m afraid to say no, other than when we got to the debate in whenever it was and we got to the 23-year conversation in 2012. At that point there was a conversation. I am happy to apologise. I should have been involved earlier, but I wasn’t. Right? When I look at the numbers, which I have in front of me, it was very easily resolvable much earlier. Anyway, for whatever reason, it wasn’t resolved. The only time I did get involved was in 2012 when we had this conversation around the £10 million a year, which you will be familiar with.

Ms Buck

We will come on to that in a second. When the first recovery—

Sir Philip Green

I wasn’t involved in it. I can’t answer you because I wasn’t involved in it. You can ask me as many questions as you like, but this was not on my table to deal with. I’m sorry.

Ms Buck

So there is no question that you can answer about any aspect of the pension fund between 2000 and 2012?

Sir Philip Green

I would say virtually no.

Mr Wright

When do things get on to your table, Sir Philip?