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September 16, 2007

Nick Cohen on Private Equity

I'm not sure that Nick Cohen is quite up to speed on how it all works:

Not all the private-equity buyouts of the New Labour years were asset-sweating operations - a study by Nottingham University found that employment rose after some takeovers.

Well, no. The research found that on average employment rose after private equity takeovers. That is, more often that not. A slight difference from "some".

Meanwhile, the AA as an organisation paid no corporation tax in the last financial year and its accounts showed that it ended 2005 and 2006 with the Revenue owing it money.

Yes, it was paying a lot of interest on its debt. (We'll leave aside the fact that companies don't actually pay tax anyway shall we? That idea of tax incidence.) That interest was then taxed when it turned up with the recipients of it.

They turned what was once a mutual association for drivers into a machine for generating private profits.

Well, yes, but Centrica (who did the original demutualisation) paid the members of the mutual association handsomely for it. £ 240 per member if memory serves correctly.

Nor can customers be said to have done well. Which? downgraded the AA from first to third in its list of reliable breakdown organisations and the RAC was left free to run attack ads highlighting the failings of Buffini's cash cow. RAC schadenfreude peaked in April, when one of its call centres received an emergency call from the AA pleading with it to rescue a patrol vehicle. It had broken down and the AA couldn't fix it.

Might be worth remembering that the RAC also demutualised in the late 90s. We've thus got two private sector firms (well three, obviously) fighting it out over who will get the customers. Usually regarded as a good thing, that. Competition, you know.

Anyway, to the massive relief of lefties everywhere I really don't think that this private equity thing is going to be much of a problem anymore. The credit crunch and the repricing of risk (somewhat overdue it was too) mean that it's simply not going to be as easy in the future as it was in the past. 

September 16, 2007 in Economics | Permalink


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Try this enlightening video about the low taxes paid by those wealthy people who can effectively live in Britain but who are not regarded as domicile in Britain for tax purposes:

As reported, only Britain and Ireland provide this extraordinarily beneficial tax arrangement for the hugely wealthy. Why?

Tim adds: Because we insist upon it for UK citizens who live abroad as well, that's why. I am non-resident but domiciled in the UK. Thus there are certain UK taxes (like inheritance tax) which I am subject to. Change one, got to change the other.

Posted by: Bob B | Sep 16, 2007 11:49:48 AM

Tim - Thanks for that. But is there any research showing whether the UK makes a net gain for that arrangement in terms of tax receipts - or is it just another piece of New Labour spin to attract wealthy non-domiciles to remain resident here and collect periodic donataions from them for the privilege?

Tim adds: No research that I know of. I'd say that in the past, it was a wash and that now, the Treasury loses. There's been a vast growth in non-doms over the past 10-20 years.

Posted by: Bob B | Sep 16, 2007 4:38:26 PM

The logic of this non-dom stuff (that we have always had - can't blame Nulab for this) is that it is better for a oil-sheik to live here, spend a lot of money on property and in shops and on private schools and so on, so even if he doesn't pay income tax, he still is increasing wealth of overall economy. Which seems fair enough, to be honest.

Posted by: Mark Wadsworth | Sep 16, 2007 7:17:34 PM