Houses, markets, asset-strippers, and Ireland

[Tuesday]

Bad news:

UK house prices are at least 20% overvalued compared with their long term average, according to credit rating agency Fitch.

Fitch, which judges how risky debt is, looked at how house prices have raced away from incomes over the past decade.

High levels of debt make the UK economy one of the most vulnerable in the world to higher interest rates, it added.

Out of 16 countries examined, the UK economy was the third most sensitive to higher interest rates, Fitch said.

More bad news:

European markets were broadly flat after flip-flopping nervously throughout the trading day following last week’s tumble.

Fears that higher interest rates around the world will hit company profits and dent consumer spending has hurt appetite for risky assets, like shares.

But, some good(ish) news:

The way private equity firms are taxed should be reviewed, the Treasury Committee has said.

Instead of using stock markets to raise money, private equity firms buy companies using money from clients and cash borrowed from banks.

In their interim report, the MPs said that HM Revenue and Customs (HMRC) should look at whether the tax system unfairly favours the use of debt.

The committee will resume its hearings when Parliament returns in the autumn.

The most controversial area of tax on private equity is the tax on the “carry”.

Private equity executives pay taxes on their basic pay and bonuses, but a large part of their income comes from carried interest – the carry – which is the 20% slice of profits they can claim once they have paid back their investors.

This money is classed as a capital gain and, as such, is subject to a tax level of 10%.

Critics say it should be charged at a normal tax rate.

Domicile status

The committee has also called for tighter monitoring of private equity bosses claiming non-domicile status.

The Treasury launched a review of the domicile rules in 2003 and the Committee asked for an update on its findings.

“Given the apparently rising number of the non-domiciled, and a perception that monitoring of the status of non-domiciles is weak, it is essential that the Treasury and HMRC are able to demonstrate that they have a rigorous approach towards claims of non-domicile status,” the report said.

The domicile laws allow people who do not live in the UK certain tax privileges even if their business is conducted there.

It has been reported that as many as 80% of partners in top private equity companies have claimed non-domicile status.

Buyout ‘risk’

The committee also expressed concern that private equity buyouts could be risky for the economy because they increase the proportion of debt, or leverage, in companies.

“Higher levels of leverage are likely to create additional risk, and that this becomes more significant the more important highly-leveraged firms become in the economy,” the report said.

“We also note that the recent increase in the number of highly-leveraged private equity-owned firms has occurred during a period of economic growth and stability, which is not guaranteed to continue,” it added.

And finally, really good news:

The British army’s operation in Northern Ireland will come to an end at midnight on Tuesday after 38 years.

Operation Banner – the Army’s support role for the police – is its longest continuous campaign in its history with more than 300,000 personnel serving.

[…]

From Wednesday, there will be no more than 5,000.

[…]

It is intended that the soldiers based in Northern Ireland in future will be deployed in foreign trouble spots, not the streets of Northern Ireland.

Hopefully, not even in the so-called trouble spots, which are in truth, other occupied territories. And I note the use of “intended”, leaving the door open for the return of British troops to the streets of Ireland. Well, they haven’t left yet, have they?

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