Your timely investigation into private equity’s penetration of public services is important, but the response cannot be merely to “manage” the problem better (‘Financial pandemic’: £1 in every £11 spent on UK public contractors goes to private equity, 28 June). Private equity should be excluded from essential services funded by the public.
This is not ordinary business investment. Too often it is leveraged extraction. A company providing care, health, transport, waste, childcare or education is bought with borrowed money, and the debt used to buy it is then loaded on to 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.
That model is especially dangerous where people cannot simply walk away. A parent needing childcare, an older person needing care, a patient needing treatment, a council needing waste collection or a community needing buses is not shopping in a free market in any meaningful sense. They are captive users of essential infrastructure. Turning that dependency into an asset class is extraction, not efficiency.
We hear that “costs are rising”. Some do rise. But before we accept that plea, we should examine debt repayments, shareholder dividends, management fees, related-party charges and executive rewards. These are not unavoidable costs. They are mechanisms for extracting public money and household income into private capital.
The government should legislate. No company controlled by private equity, private credit funds or highly leveraged ownership structures should receive public contracts for essential services. Bidders should disclose their ultimate owners, debt structure, tax domicile, fees, dividend policy, related-party payments and exit arrangements. Dividend recapitalisations, sale-and-leaseback extraction and intra-group charging should be prohibited where public funds are involved.
Mal Williams
Cardiff
Your article is a comprehensive review of the involvement of private equity groups in essential services (Nurseries, vets and shops: the sectors where private equity plays a big role, 28 June). I was, however, surprised that there was no mention of dental practices. In this area the takeover is almost complete; 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.
The finances behind these groups are often opaque. Ever tried to sue a private equity business that has an offshore registered address? It would be in the public interest for practices to revert to individual ownership of UK-registered dentists or companies listed on the London Stock Exchange and have a least one registered dentist as a company director.
Ian Graham
Port Carlisle, Cumbria
I really liked your private equity explainer. I guess one thing you might consider adding is that the leveraged private equity approach can also reduce the tax income that helps support our public services. 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. It’s generally better to support other business models if we can.
Rob Harrison
Ethical Consumer magazine
As things stand, any companythat has a contract to provide a public service – whether owned by private equity or not – has a primary duty to maximise returns for its shareholders. This is a duty enshrined in company law passed by parliament.
So what is to stop parliament changing that law to change the primary duty of any company contracted to provide a public service so that the primary duty is the proper provision of that service, which must take precedence over the requirement to maximise profits?
Tony Fletcher
Bryncoch, Neath
Your report highlights the fact that £1 in every £11 spent on public contractors goes to private-equity-backed companies and quotes the Green peer Natalie Bennett describing this as a “financial pandemic”. The implication was clear: companies backed by private capital are somehow winning more than their fair share of public contracts.
On closer examination this does not reflect the reality. The private capital industry has been an established part of the British economy for more than 40 years. It now supports around 2.5 million jobs across the UK and contributes approximately 9% of private sector GDP. In other words, private-equity-backed companies are simply winning the same share of public sector contracts as their share of the economy.
The bigger point here is surely about outcomes, not owners. 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.
The reality is that private equity is an investment model, not a single way of operating. It delivers both successes and failures, as do publicly listed markets, but in aggregate, the industry increases employment, wages and productivity in the businesses it backs.
None of this means private capital should be above scrutiny. Far from it. Public services require the highest standards of care and oversight through a strong regulatory framework. Where any provider falls short – whether privately owned, publicly listed or state-run – it should be challenged.
But overall, we should recognise that long-term investment, active ownership and productivity growth are essential to the country’s future, and can, as appropriate, contribute to our public services, as they do in the wider economy.
Michael Moore
Chief executive, UK Private Capital