Wednesday, June 20, 2007

Private Equity- We Name The Guilty Man

All dancing to "Mr Brown's" tune
Today on BOM we can exclusively reveal that the grisly gang of international speculators and profiteeers known as the Private Equity Investors are lead by a single Mastermind! And such is the fiendish cunning of this arch villain that the gang don't even realise he's their leader!

We all know the gang's crimes- the tabloids are full of them. Today's sales-driven Independent devotes its entire frontpage to them, under the snappy headline "Tax and the City". It gleefully reports that notorious consigliere Damon Buffini is being hauled before "angry MPs" and forced to explain the gang's two biggest blags:

"First, he will be required to address the advantageous treatment given to companies that borrow money rather than raise it through issuing shares... Private equity is often funded by huge levels of borrowings to take advantage of low interest rates, and thus has been the most spectacular beneficiary of the current rules.

Second, private equity has exploited a measure introduced by Mr Brown in his 1998 Budget aimed at rewarding small businesses by allowing them to keep 90 per cent of the capital gains on their assets after only two years. With a little financial engineering that can be converted into an effective income tax rate of 10 per cent."

But why are these MPs wasting time questioning Buffini? They must realise he's no more than a pawn, doing no more or less than simply following the rules laid down by someone else.

And that someone else- the evil genius behind the whole rotten business- is none other than "Mr Brown"!

Consider the evidence. Not only was it he who changed the capital gains tax regime to allow this accelerated taper relief on business assets (introduced in 1998 but accelerated even further in 2002). It was also he who abolished ACT refunds on share dividends paid to pension funds, and thus hugely increased the relative attractiveness of companies funding themselves through debt issuance (see this blog for full, and hopefully not too tedious, explanation).

No, Mr Brown is the man: the Professor Moriarty of the New Millenium. He may or may not be benefiting directly in financial terms today, but what evil genius ever did it for the money?

PS The Major reckons I've got this one wrong. He reckons Brown is not an evil criminal genius at all. He reckons he's an incompetent nincompoop who's introduced so many convoluted tax and benefit schemes that the whole economy is now shot through with unintended consequences and wealth threatening contradictions. Sometimes the Major can be so literal.

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