Monday, 30 May 2011

When will UK Uncut flash mob The Guardian?

The tone of my last two blog entries provoked some comment, both on- and off-line, along the lines that my arguments might be more effective if they were more evidence-based and less emotionally charged. Maybe so.

However, I'm a sensitive soul and sometimes find it difficult to be relaxed when I read non-factual material dressed up as news. Unlike some others, it’s the output of the broadsheet newspapers that I find most difficult to accept, as I assume – maybe incorrectly – that the impact of tabloid nonsense is well understood (though not appropriately insulated from the policymaking process).

What gets me is not just the broadsheet newspapers’ air of superiority, though this is certainly the case, nor that such a large proportion of their material is untrue, which is also the case, but that the organisations printing this stuff don't believe what they write.

Indeed, there seems to be an inverted rule at play, where the more scandalised a newspaper is over a particular moral outrage, the more likely it is the same newspaper actually commits the same offence.

And again we expect this kind of stuff from the red-tops and other tabloids. For instance, Jonathan Rothermere, chairman of Daily Mail publisher Associated Newspapers is a 'non dom', helping him limit how much tax he pays in the UK, though this does not stop the newspaper from running politically convenient sneers at others benefiting from the same break. Or The Sun mounting a campaign against politicians for being soft on crime while for decades employing a convicted killer as one of its leading reporters.

But the broadsheets apply exactly the same double standards. And so we must be thankful for Private Eye, that curiously relevant and irreverent fortnightly magazine. For without it, and specifically its Street of Shame pages, newspapers would be able to carry on printing their nonsense without anyone knowing just how large the gap is between their words and deeds.

This week's Street of Shame has a particular focus on The Guardian, and for good reason. The Guardian is undoubtedly the winner in the hypocrisy takes. Private Eye's trio of Guardian stories this week leads with a tale of debt and private equity, revealing that despite The Guardian's apparent outrage at the behaviour of private equity firms and the immorality of investment bankers and excessive debt, Guardian owner GMG has been up to all the same tricks. And some.

The story starts in 2008 when GMG decided to sell just under half its shares in Trader Media (publisher of Auto Trader) to private equity firm Apax Partners. As part of the deal, Trader Media was loaded up with £835 million of debt in what's known as a 'leveraged buyout'. As The Guardian financial editor Nils Pratley pointed out just a couple of weeks ago, in the "wonderful world of the leveraged buyout", companies loaded up with debt can cut the amount of corporation tax they need to pay

You should be able to guess what's coming next. As part of the 2008 deal to sell the Trader Media stake to Apax, the Guardian did some extensive financial engineering. Ownership of Guardian assets was transferred out of the charitable Scott Trust and instead shifted into a new private company, Scott Trust Ltd. This helped the newspaper's owners to avoid paying tax on the profits of the sale of the stake, allowing it to report profits of £306 million but for that year pay absolutely no corporation tax. (Indeed, that year they received a tax payout from the government.)

It gets worse.

In recent months GMG and Apax had looked at selling Trader Media completely, but it appears they could not get the price (two billion pounds) they wanted. So instead they decided to borrow a further £200 million against Trader Media expressly to pay themselves a special dividend.

Mr. Pratley wrote last year: "If the coalition really wanted to reverse the trend towards short-term thinking it would change the rules on the tax-deductibility of interest since the current rules encourage companies to load up with debt to reduce their tax bills … and seek instant gratification and popularity in the form of special dividends."

Guardian Economics Editor Larry Elliott, who has written a whole book about the failures of corporate debt and bankers, chipped in recently with: "The cult of private equity suggested that any business could produce bumper returns if loaded with a ton of upfront debt while management sweated its assets." This is the same Larry Elliott, director of the Scott Trust, which oversaw the Trader Media leveraged buyout deal.

So, on the one hand Guardian owner GMG has loaded up a firm with debt to pay itself a dividend and limit its corporate tax, and on the other Guardian writers queue up to condemn private equity firms for, er, loading up firms with debt to pay themselves a dividend and limit their corporate tax.
In Sunday's Observer-Guardian 'investigation' into the failures of private equity and debt, a TUC spokesperson was quoted as saying: "It sounds a depressing, familiar scenario, where a company is bought by private equity firms and essentially loaded with debt. What too often follows is year after year of value extraction."

Given the recent waves of redundancies at the Guardian, massive executive pay and plans to increase the “partnership” between the newspaper’s corporate and editorial arms, one wonders who these increasingly hysteric stories about private equity, debt and tax avoidance should really be directed at.

Newspaper, heal thyself!

1 comment:

Oli said...

Great piece, deserves to be widely read.