The Treasury is utterly deluded if it thinks borrowing from big private equity outfits is anything but a very bad deal for the UK – letter to the editor

Some context:

“Starmer wins backing of billionaire BlackRock chief: ‘He offers hope to British politics’

The Independent’s headline from October 2023

Dear Editor,

The Bank of England base rate is 4.75 per cent. Effectively the UK can borrow slightly below this.
BlackRock private debt fund currently advertises a yield (gross profit) of 8.4 per cent, which means they must be charging around 10.5 per cent on their money. They will also charge an arrangement fee (2 per cent) which government departments don’t have to pay for borrowing from the Bank of England. If you do borrow from big private equity, you cannot borrow from anybody else; they will take security over all the assets.

They will insist on also taking part of the equity to give them control, and they will absolutely f*ck you if you go back to them for more money because things are running late or over budget. Because they have a massive upside on the equity and – having taken control of any intellectual property – can exploit things in multiple ways, across their portfolio, they aim to make 12 – 15 per cent every single year, compounded.

For every £1 they put in, they take around £3 out.

But here’s where it gets really nasty:
If the government invest, then all the potential taxation and control remains within the UK. But if the investor is someone like BlackRock, then profit, effectively the only thing subject to corporate tax, is measured after interest, management charges, and a lot of other things. None of those things are taxed in the UK. They all go to tax havens.

That money is permanently now outside the UK. It never contributes to money supply, it never gains any velocity of circulation, and it never helps anyone here. Slowly, slowly, they drain the UK dry.

The Treasury may be deluded. It appears to thinks all it needs to do is collect a bit of VAT on sales, some PAYE and NI from the work force and, if it’s lucky, some dividend tax, and then it can try to make the balance. That is the doctrine of Hayek and Buchannan. An ideology devoid of evidence of safety.

I was involved in (at least) two privatisations at a big London advisory firm. We all understood the scam.

I was involved in reviewing some hospital PPI deals. We – everyone on the team in the 1990s – were very clear that these deals were NOT value for money, and could cost 10 times more than funding by HMT. Our concerns were mysteriously “de-emphasised” by the lawyers who write the report. The lawyers paid for by the lenders…

We were wrong. They cost 20 times more. The public is also now paying to fix the horrors they created with their cost cutting during construction.

Is government just stupid? Corrupt? In a cult?

Author known to the editor, but details withheld from publication for obvious reasons.

‘Socialised losses, privatised profit’

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Editor: One observer, Peter McCormac, commented on the Starmer tweet above:

Larry: “What’s BlackRock going to do with the farms, Keir?”
Keir: “Rebrand, Larry. It’s not farming; it’s ‘Agri-Financial Assets’ now.”