Private equity parasites threaten flight over fairer taxes

[Saturday]

The current (ten per cent) rate of tax on private equity firms was supposedly intended to stimulate the growth of small businesses, not provide a tax dodge for big businesses.

The cheek of it…

Buy-out body threatens tax flight

The private equity world’s trade body has threatened to quit the UK if a tough tax regime is imposed on it.

The British Private Equity and Venture Capital Association (BVCA) said its members might shift to other EU nations if faced with unwelcome new tax rules.

The Treasury is examining the situation whereby private equity firms can pay as little as 10% in tax.

Critics have alleged that the private equity industry is taking advantage of the UK’s tax laws.

Dissenting voice

The BVCA maintains that the UK only has a “fragile” lead over its economic rivals in Europe and says France, Italy or Germany could attract firms departing in resentment at harsher taxes.

But the private equity world does not speak with one voice on the issue.

Earlier this year, John Moulton, a founding partner of private equity group Alchemy, accused some firms of “abusing what is already a generous tax regime” by moving money overseas to avoid tax.

At heart of this debate is what is known as carried interest.

This comes from the 20% of profits that firms take after their investors have been repaid.

This carried interest is treated as a capital gain and hence incurs a tax rate of 10%.

The BVCA contends that carried interest represents only 40% of private equity earnings.

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Lib Dems demand referendum on EU but not on the consti-treaty?

[Saturday]

The Tories, the Trades Union Congress, and now the Lib Dems favour a referendum on the EU constitution/treaty.

The Liberals want a referendum on the treaty, right? But wait! No…

Party leader Sir Menzies Campbell earlier this week refused to back calls for a referendum on the EU treaty.

But he said the public deserved an “honest debate” on Europe – and “that means a referendum on Britain’s membership of the EU”.

His call comes as the Lib Dems head for their annual conference, which gets under way on Sunday.

Sir Menzies told BBC News 24: “I want to argue the case for Europe. I am a pro-European.

“That case has gone by default too often in the past 10 years of this Labour government”.

He said he wanted an “out and out debate” to flush out Eurosceptics on the Conservative benches
who had “taken comfort” in that party’s call for a vote on the EU treaty.

So the issue for Campbell has been widened to the question of Britain’s membership of the European Union – rather than just the consti-treaty.

Sir Menzies said he agrees with the prime minister – but as an ardent pro-European he is “not prepared to allow [Conservative leader] David Cameron to lead the Europhobes and their allies in sections of the media, to distort the debate on Europe without challenge”.

The Lib Dem leader, who was expected to face calls to back a treaty vote from some of his own MPs at his party’s conference, said voters should be given a “real choice”.

“If there is to be a referendum it shouldn’t be restricted to a comparatively minor treaty. It must be a decision about the EU as a whole.

“Let’s have an honest debate on the European Union followed by a real choice for the British people. That means a referendum on Britain’s membership of the EU.

“We would ask the British people the big question – whether to remain in the European Union or not.

“I will lead the Liberal Democrats at the forefront of that debate.

“We will make the overwhelming case for Europe and trust the people to make the right choice.”

It seems like this is an attempt to muddy the waters, with Campbell hoping that the argument for staying in the EU will win over rejecting the constitution, but I suppose this helps build momentum for a referendum on the constitution.

Will Brown capitulate? I think it’s possible – better for the EU and the British ruling class that the debate is limited to the question of the constitution.

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Yet more credit crunchiness

[Saturday]

in what is perhaps an attempting to emulate the prudence of his predecessor, Chancellor Darling has called for banks to be more cautious in their lending practices. This call might go unheeded by the banks, but the credit boom is over.

The rising costs of borrowing, fuelled by the global credit crunch, have led to an increase in the number of people seeking debt advice

[The Citizens Advice Bureau] said the figures illustrated how the consumer credit boom of the past decade – characterised by an easy availability of cheap credit and by people taking on more and more debt – had turned sour for many.

“These figures are worrying evidence that while many have enjoyed the benefits of the credit boom, a large and growing number of people continue to pay the price,” said David Harker, CAB’s chief executive.

Bankruptcy-related enquiries rose 50% last year, while the number of people requiring help with their overdrafts rose 14%. Mortgage-related enquiries rose by 11%.

Most disturbing of all, the CAB argued, was a 33% rise in the number of people struggling to pay their energy bills and a 25% rise in enquiries about council tax payments.

So when the Northern Rock successfully requested emergency support from the Bank of England, it is not surprising that queues quickly formed outside bank branches as savers sought to retrieve their much needed money.

As for the UK economy, the “worst case scenario” is that growth will be 1% lower in 2008/9, according to a report by the Ernst & Young Item Club:

“Despite the very different dynamics of supply and demand in the UK, it is possible that this slow-down will prove contagious to the housing market this side of the Atlantic,” Professor Spencer said.

He added that about two million UK borrowers who had fixed rate mortgages faced a tough time when those deals expired.

“When they do they are likely to see far more stringent terms around the conditions that UK lenders offer as well as an uplift in the monthly cost,” Mr Spencer said.

The Item Club added that the US could expect to see a 1.5% cut in growth next year with Europe as a whole seeing economic expansion slow by a lesser amount than the UK.

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Thatcher and Sons

Was this designed to disrupt the launch of the Tories’ environmental proposals or a genuine love-in between the Iron Lady and the former Iron Chancellor?

Naturally, the despised current PM denies that there was anything untoward about his meeting with the despised former PM. This might be “dog-whistle” politics, but what’s the message to Labour’s supporters and its donors in the trades unions?

The GMB’s general secretary Paul Kenny expressed his disbelief at the news:

“Mrs Thatcher was put out of Downing Street by the Tories themselves. It is unbelievable that she should be invited back by a Labour prime minister.”

Kenny has been making noises about the status of the GMB’s funding of the Labour Party, and this will not have helped the Labourite union leaders’ efforts to maintain affiliation. Might the Tory tea party be the tipping point?

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