Private Equity Firms – Brown Stop the Theft!

Sitting on the bus in London, I occasionally see posters attacking those benefit cheats who earn a little money on the side, but still claim benefits. The public pour scorn on these people who are often on the fringes of society. Though they are often quite poor, we should stop this supposed massive abuse of the system immediately because it is a national scandal. While I do not disagree that there is an element of this activity, but we should concentrate less at this end of the economic spectrum until we have stopped some more disgusting and abhorrent activities of the richest in society.

The private equity owned businesses like the AA/Saga incurred no liability for corporation tax last year, reports the BBC. In fact, in two-and-a-half years of ownership, they paid zero corporation tax, while making huge profits.

“In the same period, the private equity owners of these businesses - Permira, CVC and Charterhouse - generated gains for themselves of £2.5bn. This is about three-and-a-half times the value of their initial investment.”

John McFall MP of the Treasury Select Committee is investigating whether the private equity companies are using debt as equity. This is a real abuse of the system and these people should be plastered all over the halls of Westminster and on London Transport, and not the benefit cheats.

This is how the private equity owners reduce the amount of tax they pay… they inject huge debts into their companies, and the interest paid on these borrowings wipes out all taxable profit - thereby minimising liability to tax.

The AA's accounts show that it ended both 2005 and 2006 with the taxman actually owing it money - £67.9m and £11.9m. However in 2006, the AA made an operating profit of £252m, which was 29% higher than in the previous year.

Private equity partners tend to argue that all they do is transfer the liability for tax to those institutions that lend money to their companies. But in a globalised financial world, many of these providers of debt are domiciled outside the UK, and do not pay tax here (if they pay tax at all). Again, many of the owners of the AA and Saga - whether the investors in the private equity firms' funds or the partners in those firms - pay tax outside the UK. And among those that pay British tax, some will pay the reduced capital gains tax rate of 10%, which is far lower than the corporation tax rate of 30%.

These are the real cheats and a national scandal that needs to be put right.

(Most of the information is obtained from the BBC News website).