...Such people may pay income at 40 per cent on their salaries and bonuses.I don't know enough about these funds to know whether it's correct to apply the 10% CGT rate instead of the 40% rate that a normal salary or bonus would attract. Instead, I wish to address a point made in today's Money Week by editor Merryn Somerset Webb.
But by far the greatest part of their income comes from the money they make out of taking companies private. On these vast sums, they pay capital gains tax at a rate of just 10 per cent.
This means that a number of very fortunate individuals in private equity companies are paying very little tax on huge earnings.
Nicholas Ferguson, the chairman of SVG Capital, recently said that he felt uncomfortable with paying lower taxes than his cleaner. A smaller number of buy- out partners who can claim nondomiciled status in this country pay no tax at all.
The reason why private equity funds have been doing so well is not so much the low taxes paid by their owners but rather that artificially low interest rates give equity funds an advantage over financing by shares. The UK's bizarrely-named Bank of "England" has been on a binge:
If you wanted to keep everyone happy in the short term (the very short term, that is), you could just dole out 0% credit cards and limitless interest-free overdrafts to anyone who asked for one.The Bank hasn't exactly set interest rates at zero but targeting the extremely low Chavs' Price Index (CPI) doesn't help. Man does not live by iPod alone.
The trouble with that approach of course, is that if you give everyone free money, then eventually prices end up rising.
Money supply is growing at way over 10% pa. Inevitably, that feeds through into higher prices, including asset prices. Hence the private equity funds and hence also the house price boom. It will, as always, end in tears. The "independent" Bank of England's inflationist policies steal from savers - often pensioners - and give to the undeserving rich. That's not real capitalism; it's socialism for the pensioner and capitalism for Gordon Brown's mates in the City.
We need to remove the state from the money business entirely. Let's go back to the good old Scottish tradition of free banking. I want my savings backed by private enterprise not by the government's own pet bankers who haven't got a clue.