Thursday, 15 February 2007

GMB and private equity

Here's the letter the GMB sent to Labour MPs about private equity firms. I have a few misgivings but the campaign certainly has a head of steam.

8 Feb 2007
GMB publishes letter to MP's seeking Commons debate and asking them to sign motion condemning asset stripping at AA and elsewhere

This is the text of the letter sent to GMB Members of Parliament on February 7th 2007.

GMB is seeking help from our members of Parliament to secure action to rein in the activities of the venture capitalists. GMB is calling upon Gordon Brown in his next Budget, to end tax relief for interest payments on loans used by venture capitalists to buy companies like the Automobile Association, Birds Eye and Sainsbury's. This relief costs the Exchequer hundreds of millions per annum, while giving debt unfair tax advantages over equity. This transfer from taxpayers is now leading to the destruction of household name companies by venture capitalists, who are saddling these employers with massive debts. This is no small matter, UKcompanies owned by venture capitalists employ 3 million people in Britain.

For example at the AA, since the venture capitalists took over in 2004, they have loaded the AA with debts of £1.9 billion. This massive debt amounts to over six years of the subscription income from the AA's individual members. It amounts to £300,000 per AA employee. This debt is backed up by virtually no assets, since nearly all buildings and fleet used by AA are leased. At AA the venture capitalists sacked 4,000 of the 10,000 staff, saving £100m per annum on resources devoted to dealing with 4 million breakdowns per year.

Not surprisingly services to AA customers have declined. AA response times have fallen from first to third in the Which rankings. As there are fewer patrol staff to deal with the same volume of breakdowns, each patrol is forced to work overtime, and has to attend a higher number of breakdowns per day. The patrols are only able to provide a lower level or roadside service particularly to the 4 million individual AA members. More of them end up being towed to garages than was formerly the case.

Profits at AA have risen to £175 million, of which more than half is used to pay interest on the £1.9 billion loans. So rather than the Exchequer receiving tax on these profits the venture capitalists are able to claim millions in tax relief on the interest payments. Thus the taxpayer issubsidisingthe activities of the venture capitalists.

GMB opposes the unregulated and unaccountable activities of venture capitalists, their ability to get tax relief on loans, and the effect they have on companies, jobs, pensions and the economy. GMB consider that the private status of the venture capitalists is an abuse of company law and abuse of the privilege of limited liability status. The growth in this industry is leading to increased merger and takeover activity thus generating huge bonuses for the City while the management team who run the industry levy very steep charges and commissions. In effect it is a vehicle whereby the savings management sector is able to cream off large sums of money for their own self aggrandisement.

GMB is seeking an adjournment debate before the Budget to press this policy on the Chancellor. The news that these same venture capitalists are circling Sainsbury's makes this change of policy more urgent.GMB is asking all members of Parliament to submit a bid for an Adjournment Debate on the floor of the House of Commons, and request that you as an MP will also submit a call for that Debate. The more support we receive, the higher the chance we get in securing this Debate.

There will also be a new Early Day Motion on this subject very shortly, and I would ask you to also support this Motion by signing your name.

Can you please let me have a copy of your request for the Adjournment Debate so that I can brief you on the salient issues?

Yours sincerely

Paul Kenny, GMB General Secretary


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