ALEX BRUMMER: Private equity income is obscene, but heavy tax changes could push a valuable industry back to New York
The pay for publicly traded corporate executives is under scrutiny, especially when companies are in the spotlight. Tesco CEO Ken Murphy’s £4.4m salary is aimed at a time when rising food prices are being scrutinized in supermarkets.
At ITV, Carolyn McCall’s £3.5 million rewards have been highlighted as a result of the Phillip Schofield affair.
One of the reasons to be skeptical about private equity, which has spent £80bn over the past five years trying to delist UK companies, is lack of transparency.
The most recent deal, Asda’s £2.3 billion takeover of the EG Group’s British and Irish petrol stations, has been shrouded in secrecy.
Private equity industry: Large parts of Mayfair are colonized by the fraternity, which works closely with brokers, investment banks and lawyers in the city
If EG were a publicly traded company, there would be all sorts of questions about whether the brothers Mohsin and Zuber Issa paid a fair price and whether there was a fair division of the loot in a company-to-company transaction.
Not only the opaque nature of private equity is a cause for concern. It relies almost exclusively on debt, which makes the companies vulnerable in times like these when interest rates are rising.
The revelation that private equity kingpins have collected £2.7bn in carry interest, the share of profits from successful deals in 2020/21, is unlikely to escape Labour’s scrutiny as it looks for easy goals.
As much as one loathes the party’s mistrust of wealth, one cannot help but sympathize with efforts to quell private equity. The earnings made are obscene.
It seems ridiculous that the income of FTSE 100 managers is taxed at 45 per cent, while deferred income is subject to a capital gains tax of 28 per cent.
There are fears that this disparity could lead Labor to the wrong conclusion: raising the capital gains tax to the same level as the income tax. That would kill off Britain’s start-up entrepreneurial culture.
People regret some of the things that private equity does. Who can forget the defenestration of aerospace pioneer Cobham?
But the industry is part of the UK’s financial infrastructure. Large parts of Mayfair have been colonized by the fraternity, who work closely with realtors, investment banks and lawyers in the city.
Heavy tax changes can drive a valuable industry back to New York or across the channel.
Turkish fruit
The loss of Arm Holdings’ float to the US is a tragic blow, but the seeds of that were sown when the May/Hammond government panicked and sold to SoftBank in 2016.
Retrieving it from the spry hands of Masayoshi Son was never going to be easy.
A decision by British group WE Soda, controlled by Turkish tycoon Turgay Ciner, to take its £6bn float to the London premium market is a boost after a poor start to the year for IPOs.
The problem is that the UK has no active pension fund managers willing to put their faith in UK equities and infrastructure.
Engineers Melrose’s decision to revive GKN’s Dowlais in the City automotive branch was a useful start.
Both the Financial Conduct Authority and the London Stock Exchange are looking at ways to make listing in London more attractive. One of the ideas being revealed is better access to liquidity for private companies.
There are some health warnings about WE Soda. The main product, Soda Ash, is treated unfavorably by the green lobby. But which companies are not?
Ciner, who has made his home in Britain, might think differently if the next government were to scare off wealth creators.
Blame game
Anyone who tuned in to Radio 4’s debate over extortionate food prices could not help but be struck by the fact that the bosses of Britain’s biggest supermarket chains and challengers such as Lidl and Aldi all refused to appear.
Here was an opportunity to explain how the UK has one of the most competitive food retail markets in the world.
There are myriad reasons, ranging from poor policymaking in Whitehall to high energy prices, for the food cost bubble.
A kink in the supply chain, from farmer (60 per cent of British food is produced domestically) to manufacturers and retailers, is putting consumers at a disadvantage.
The tough-talking head of the Competition and Markets Authority Sarah Cardell has bravely taken power from Microsoft. Now she must make British food prices and poverty an urgent priority.