BOOK
Britain for Sale, by Alex Brummer
Cornerstone/Random House Business Books, £12.99
Great swathes of our economy are now being run for the benefit of foreign companies, wealth funds, private equity firms and infrastructure investment groups. Just recently, we have seen Boots, that most iconic of British retail groups, being sold, with the centre of power moving to the US. A few years before that, it moved its base from Nottingham to Zug in Switzerland, after being bought by its CEO and the US investment group KKR.
Britain for Sale, by the Daily Mail's City editor, does a good job of plotting the remarkable growth in foreign ownership of British businesses and utilities over the past two decades, and I am old enough to remember most of the deals in the book. (The only error I could see was that my old firm CVC was listed as being American. It is now based in the more tax-friendly Luxembourg.) There are good accounts of a few deals, including the dissipation of ICI following its purchase and the more recent hostile takeover of Cadbury by Kraft, the deal that motivated Alex Brummer to write this book.
He develops the history in measured terms and is a fan of the way Maggie Thatcher opened up the UK and developed London into the globe's leading financial centre. But the flow of foreign investment and acquisition meant that by 2007 half the output of the British economy was foreign owned.
The main criticisms of this are well rehearsed and Brummer discusses most of them. Many owners will put the interests of their own countries ahead of those in their overseas subsidiaries. So if it's a decision on where to put new product development, cut jobs or invest in new equipment, the bias is always towards home sweet home.
There is some evidence that foreign ownership results in a reduction of the UK tax take. This can be a consequence of the use of heavy gearing where the tax deductibility of interest greatly reduces the tax bill. Boots and others moved to a tax haven. There are other factors - Spanish acquirers bought BAA and Abbey National with considerable tax concessions back in Spain.
In the UK, we have allowed many of our energy and transport utilities to go into foreign hands. This is particularly irksome when other countries (eg France) do not allow reciprocal transactions to take place. There are elements of the UK's national interest that an overseas owner will be less interested in than its own profits. For example, decisions taken in Germany, Australia, Dubai and Canada are affecting the pace of the adoption of nuclear or alternative energy here. Meanwhile, the profits are flowing out of the UK.
In sectors where private rather than public ownership already gives concerns as to long-term direction, the additional problems of foreign control seem unlikely to be in the UK's best interests. Given that many of these deals were also heavily loaded with debt, further restricting operational flexibility and investment, it is surprising more problems have not emerged.
The final big theme is countries investing and acquiring assets through sovereign wealth funds. The concern is that the interests of other states may differ from the UK's and that these other states will gain undue influence - especially in times of international tension.
Although this is mostly a pretty good book, the weakest part is its conclusions. Some are not well linked to the rise in foreign ownership. Brummer bemoans the excessive growth in financial services and the loss of manufacturing output, but does not make much of a connection. (Manufacturing declined partly because the City and the UK public sector easily outbid industry for talent.)
Brummer suggests we establish a decision-taking commission to consider the interests of all stakeholders in all takeovers, whether there was a foreign buyer or not. It would also consider the degree of leverage in deals.
Remarkably, he suggests - without supporting it - that there should be 'robust government-controlled institutions' that could step in to 'save assets being sold on the cheap to foreign buyers'. Brummer clearly is more optimistic than me on the competence of Government, and the book contains no evidence that foreigners have actually bought assets 'on the cheap'.
He goes further, suggesting a British Investment Bank, with borrowing powers to acquire assets but not to run them and this body would 'monitor their position within the economy'. He is good enough to point out how badly this strategy failed (spectacularly) with British Leyland - but again this is not much linked to the theme of the book.
In summary, a good history, a good listing of the arguments but sadly not much in the way of useful conclusion or verdict.
Jon Moulton is the chairman of Better Capital.
