Private equity firms should be excluded from essential public services funded by taxpayers, according to a letter from Mal Williams of Cardiff. Writing in response to a Guardian investigation, Williams argues that private equity investment is not ordinary business investment but 'leveraged extraction.' The investigation found that £1 in every £11 spent on UK public contractors goes to private-equity-backed companies.
Leveraged Extraction Model
Williams explains that private equity firms buy companies providing care, health, transport, waste, childcare, or education with borrowed money, then load the debt onto the company itself. 'In plain English, the company is made to buy itself on credit,' he writes. Staff, service users, suppliers, and taxpayers carry the cost while investors pursue fees, dividends, refinancing gains, and resale profits. This model is especially dangerous for captive users of essential infrastructure, such as parents needing childcare or patients requiring treatment.
Dental Practices Takeover
Ian Graham of Port Carlisle, Cumbria, highlights the near-complete takeover of dental practices by private equity. Most practices are now part of large groups, with former owners often staying on as salaried dentists. Private equity backers pressure practices toward high-margin treatments like implants, and finances are often opaque. Graham suggests practices should revert to individual ownership by UK-registered dentists or companies listed on the London Stock Exchange, with at least one registered dentist as a director.
Tax and Legal Concerns
Rob Harrison of Ethical Consumer magazine notes that leveraged private equity can reduce tax income. Post-buyout firms making large debt repayments may show zero profit, meaning zero corporation tax paid. Tony Fletcher of Bryncoch, Neath, calls for changing company law so that companies contracted to provide public services have a primary duty to properly provide that service, overriding the duty to maximize shareholder returns.
Industry Defense
Michael Moore, chief executive of UK Private Capital, defends the industry, stating that private-equity-backed companies win the same share of public contracts as their share of the economy. The industry supports 2.5 million jobs and contributes 9% of private sector GDP. Moore argues that procurement should judge suppliers by capability and value for money, not ownership structure. He acknowledges that scrutiny is needed but says long-term investment and productivity growth are essential.
Call for Legislation
Williams urges the government to legislate: no company controlled by private equity, private credit funds, or highly leveraged ownership should receive public contracts for essential services. Bidders should disclose 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.
