Private Equity’s Role in Public Services Under Fire
Readers responding to a recent Guardian investigation into private equity’s penetration of UK public services have called for the exclusion of such firms from essential services funded by the public. The investigation revealed that £1 in every £11 spent on public contractors goes to private-equity-backed companies, a trend described by Green peer Natalie Bennett as a “financial pandemic.”
Mal Williams of Cardiff argues that the response cannot be merely to “manage” the problem better. He states: “Private equity should be excluded from essential services funded by the public.” He explains that private equity investment is not ordinary business investment but often “leveraged extraction,” where a company providing care, health, transport, waste, childcare or education is bought with borrowed money, and the debt is loaded onto the company itself. “In plain English, the company is made to buy itself on credit. Staff, service users, suppliers and taxpayers carry the cost, while investors pursue fees, dividends, refinancing gains and resale profits.”
Dental Practices as a Case Study
Ian Graham from Port Carlisle, Cumbria, highlights the near-complete takeover of dental practices by private equity groups. “Most practices are now part of large groups, with the former owners often carrying on as salaried dentists. Inevitably, private equity backers look for a good return, and this can result in pressure to steer clients towards high-margin treatments like implants.” He notes that the finances behind these groups are often opaque, making it difficult to sue a private equity business with an offshore registered address. He suggests that practices should revert to individual ownership of UK-registered dentists or companies listed on the London Stock Exchange, with at least one registered dentist as a company director.
Tax Implications and Legal Changes
Rob Harrison of Ethical Consumer magazine points out that the leveraged private equity approach can reduce tax income. “If post-buyout firms are making large debt repayments, any profits they were making can dwindle – sometimes to zero. And zero profit means zero corporation tax paid.” He advocates supporting other business models where possible.
Tony Fletcher of Bryncoch, Neath, calls for a change in company law. He argues that any company contracted to provide a public service has a primary duty to maximise returns for shareholders, but parliament could change the law to make the proper provision of that service the primary duty, taking precedence over profit maximisation.
Defence of Private Equity
Michael Moore, chief executive of UK Private Capital, defends the industry. He argues that private-equity-backed companies are simply winning the same share of public sector contracts as their share of the economy, noting that the industry supports around 2.5 million jobs and contributes approximately 9% of private sector GDP. He says: “The ownership of a business does not tell us whether a company is providing good value, good service or good results. Public procurement should judge suppliers by capability, performance and value for money, not by whether they are privately owned, publicly listed, family-owned, employee-owned or backed by private equity.” He acknowledges that private capital should be subject to scrutiny but emphasises that long-term investment, active ownership and productivity growth can contribute to public services.
Proposed Legislation
Mal Williams urges the government to legislate so that no company controlled by private equity, private credit funds or highly leveraged ownership structures receives public contracts for essential services. He proposes that bidders should disclose their ultimate owners, debt structure, tax domicile, fees, dividend policy, related-party payments and exit arrangements. He also calls for prohibitions on dividend recapitalisations, sale-and-leaseback extraction and intra-group charging where public funds are involved.
