Labour's loopholes
In the City, Issue 1627
rachel-reeves.jpg
MARGINAL GAINS: Labour’s Rachel Reeves is treading carefully over tax
Slicker writes… SPECULATION that Labour would water down its threatened assault on the highly lucrative "carried interest" loophole for private equity executives by taxing that money as income rather than capital gains has proved to be right.

Two weeks ago the Financial Times reported chancellor-in-waiting Rachel Reeves as saying paying 28 percent capital gains tax instead of 45 percent top-rate income tax would remain if executives invested their own money in the deals on which a "carried interest" on investment profits are earned.

This has been a nominal percentage of the private equity investment funds they run yet can provide bumper returns when the assets acquired are sold. But how much skin would they have to have in their game? And could that be from third-party loans arranged by their employer, rather than their own capital?

So no need for private equity suits to start packing for Italy, Spain, Germany or France.

Labour of love
The Labour party manifesto calculated that making that change to income tax would produce an extra £565m a year by 2028-29. In the 2021-22 tax year, 5,000 private equity executives shared "carried interest" profits worth £5bn, up from £3.4bn shared by 2,550 the previous year. That meant a £1.4bn liability for capital gains tax in 2021-22, up from £921m the previous year.

According to tax expert and campaigner Dan Neidle, that would have been another £2.3bn in income tax and national insurance without the loophole. But Labour wants to be loved in the City.

Taking a Shein
For similar reasons, Reeves quickly moved to reject calls to close the tax loophole which plays a vital role in the business model of online ultra-fast fashionista Shein, whose £50bn London flotation Labour MPs have been encouraging.

No sooner had the last Eye been published pointing to this contradiction for a future Labour government needing new tax revenue than Reeves was quoted in the FT as denying any plan to charge import duty (12 percent on clothing) on small packages costing under £135 shipped direct to Shein's UK customers – who of course vote.

Shein has now filed a preparatory paperwork with the Fundamentally Complicit Authority, the next move in a planned initial public offering. But there is still little appetite for Shein shares among institutional investors because of its China baggage.

Despite moving headquarters to Singapore in 2021, Shein relies on Chinese factories and there are human-rights questions over its suspected use of cotton from Xinjiang province and links to reported forced Muslim Uyghur labour, which Shein denies.

Beijing bind
That Shein is still a Chinese company is evidenced by the need for approval from Beijing regulators for the London IPO to go ahead. They will also influence what information can and cannot be provided about the operations in China. China does not accept any criticism of its treatment of the Uyghurs, so how can a Shein prospectus provide full disclosure?

The FT last month reported consternation inside Shein after chairman Donald Tang's comment, during a Milken Institute event in Los Angeles in May, that the company's success was based on American values and in that sense "we are an American company". The US is its biggest market. Videos of his talk and online reports had been deleted.

Shein still has the option of listing in Hong Kong – a much softer and Beijing-compliant option. But it could leave some red Labour faces.

COLUMNISTS
Issue 1627
pandemic update
With M.D.: "While the Health Foundation, an independent charity, estimates the NHS needs an extra £39bn a year by 2029-30, this is on top of the current £8bn extra a year funding growth. And it doesn't stop there. Another £10bn may be needed to compensate infected blood victims and £10bn to fix dangerous NHS infrastructure and hackable IT systems. Some NHS buildings are fire risks, in others sewerage comes through the floor…"
agri brigade
With Bio-Waste Spreader: "Many former Conservative voters were thinking of switching to other parties in this week's general election angry at the way privatised water companies have been allowed to keep dumping vast quantities of untreated raw sewage into Britain's rivers. But with agriculture responsible for 50 percent of nitrate pollution, 25 percent of phosphorus pollution and 75 percent of sediment pollution of Britain's waterways, what can farming do to reduce its own disastrous impact…"
signal failures
With Dr B Ching: "Most of the ‘Access for All' (AfA) upgrades to railway stations the government announced in 2019 have still not been delivered – including 70 percent of those originally scheduled for 2014-19. Major AfA upgrades usually install new footbridges with lifts or long, gently sloped ramps. They're at the easy end of the railway engineering spectrum; most of the work is done while the railway and station remain open…"
eye tv
With Remote Controller: "Coverage of Euro 24 shows a startling change in English tactics. Not on the pitch, where it is the usual glue-walk through an easy group followed by a lacklustre struggle when sudden death begins. But in the stadia and TV studios. In the past, the pisspoor victory on Sunday against Slovakia, through two very late goals against a team ranked 40 places lower, would have been gleefully celebrated by former teammates and golf pals of the current squad…"
keeping the lights on
With Old Sparky: "Whatever the result of the election, one aspect of energy policy all the major parties are committed to is developing hydrogen as a ‘green fuel'. But is it destined to be a major part of the future of energy? There are reasons to be cautious; and while there is a strong case for the UK to be a pioneer in green technologies such as offshore wind, hydrogen is a good candidate for letting others make the running…"
music and musicians
With Lunchtime O'Boulez: "City of Birmingham Symphony Orchestra is advertising for a communications manager, though anyone tempted to apply should know the job description warns of ‘challenging situations that might arise'. In current circumstances, that's an understatement. A fine band with a good conductor but appalling management, the CBSO has staggered from one PR crisis to another…"
eye world
Letter from Yerevan
From Our Own Correspondent: "Everyone forgets about little Armenia, except our unfriendly neighbours. But violent clashes between police and protesters have rocked the capital, Yerevan, for the last two months, threatening to destabilise our tiny republic. The protesters are angry at prime minister Nikol Pashinyan, who decided to cede four villages on the border to Azerbaijan, with whom we have been fighting on and off since the fall of the Soviet Union…"
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Next issue on sale: 17th July 2024
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