Pages 18-19 of the Little Book:
Huge chunks of our physical and societal infrastructure are being exploited for profit. Water companies and sewage scandals are just the tip of the iceberg. Care homes, funeral parlours, child care, armed forces housing and health care have all been targeted by private equity operators (described in Wall Street as the apex predator).
This is happening with the tacit encouragement of our government, persuaded that the private sector can replace public sector provision with a better service at lower cost – a mantra that is a myth.
The care sector is easy money. Councils have been forced by Govt to sell off properties and outsource their responsibilities, often buying-in services they previously operated. As a consequence, councils are being stiffed with charges much higher than directly operated facilities. The majority of children’s homes and homes for the elderly are now owned by private equity groups. Whichever sector is being exploited the model is broadly the same: load up with debt, offshore ownership of properties, slash staffing, increase prices, and evade taxes by inflated internal group billing.
SOME STARK FACTS
• Over the past 20 years UK government has transferred a large number of state functions and assets to the private sector. PE has been at the front of the queue.
• Although PE has been acquiring corporate assets since the 1980s, dramatic growth since 2008 has changed the ownership of companies (and public services) to an extraordinary extent. Five years ago more than 3,000 UK companies were owned by private equity; in the US private equity accounted for assets totalling more than $5 trillion. You can be certain the figures in both examples are higher today.
• The flood of money released by central banks in response to the 2008 financial crisis and a similarly enriching largesse during the pandemic has been pooled with sovereign wealth funds and pension funds to create a voracious beast with an insatiable appetite for profit.
• In general, PE does not actually create anything – it engages instead in extracting resources from previously existing assets. That can be through a process of asset stripping or in the case of healthcare and vetinary by ramping up charges. Eventually, by excessive extraction of revenue flows, the companies fail and are sold off or in the case of public services governments have to renationalise.
HOW PE WORKS
• As a brief explanation of the PE model, a business (or state enterprise) is acquired using loans. The management is replaced, the workforce cut, and assets such as land and buildings are sold, often to an entity registered in an offshore tax haven.
• The acquired business then pays the interest on the debt used to acquire it, plus repays the principle sum over time, pays rent for premises now under offshore ownership, and pays management fees to the private equity owners. Other costs used to reduce its taxable capacity include payment to linked third-party suppliers, at prices which are not arm’s length.
• For PE-owned care homes, as much as 20% of the weekly fee per bed is paid in interest costs alone i.e. interest on the debt taken on by PE to buy the care homes. In addition, as much or in some cases more that 25% of their annual income is spent on rent, often paid to companies registered in tax havens, compared to less than 5% among non-profit care homes.
• Around half of the income of the care homes sector in the UK is paid by local authorities. Exactly how much of that is being siphoned off to support the PE business model instead of caring for the elderly or vulnerable?
You can read a fuller explanation of PE in the health sector here:
https://lowdownnhs.info/private-providers/private-equity-the-new-face-of-privatisation/
