Just ‘cos its legal doesn’t means its fair. The market used to be part of the society we lived in, now the society we live in is part of a globalised market which is motivated to make as much money as possible for a smaller and smaller number of super wealthy who probably don’t even see themselves as part of the same society in which 99% of us live.
To see how that changed our medical services, I asked Haslam to examine the accounts of Boots UK, the main British subsidiary of the continental conglomerate Alliance Boots. The investors’ method, as Haslam describes it, was “stretch and extract”: stretch company finances and staff as far as they can go – then extract profits.
Stretching began immediately, by loading up the new asset with billions in debt. To buy Alliance Boots, Pessina and KKR had invested £2.5bn of their own money – but they borrowed almost £9bn from Barclays, the Royal Bank of Scotland, Citigroup, JP Morgan, and Merrill Lynch among other banks. The borrowed billions were then shoved onto the balance sheet of Boots UK Ltd – and those banks jumped to the front of the queue for repayment out of the profits made by the company.
Set in black ink on pink paper in the Companies and Markets section of the FT, these are no more than the technicalities of a company buyout. Yet they amount to a dramatic shift in power. Think about that previous paragraph again: a billionaire based in a tax haven, Pessina, and a small consortium of wealthy investors and funds, represented by KKR, pick up a 158-year-old company employing around 70,000 Britons. To do so, they borrow billions from a few global banks and dump most of these loans on the balance sheet of Boots in the UK – pushing it deep into debt, even though the debt has nothing to do with the actual business Boots does here. A firm that delivers an essential social service is now private, making it almost impossible for outsiders to see how it is changing. Finally, the profits made by Boots UK are used to repay the lenders faster and ultimately leave more profit for the investors.
In this way, British money – whether from customers or taxpayers – was siphoned offshore. The KKR funds that owned Alliance Boots were housed in the tax haven of the Cayman Islands, while the stakes held by Pessina were located in Luxembourg. A few months after going private, Alliance Boots shifted its headquarters from Nottingham to the low-tax canton of Zug in Switzerland.
There is nothing illegal about these arrangements, and a spokesman insisted at the time that the move to Zug was absolutely not for tax purposes: “We have chosen to locate the overall stewardship of the group in Switzerland as we believe it enhances the position of Alliance Boots as a leading international pharmacy-led health and beauty group.” Yet when Richard Brooks, a former tax inspector, visited Alliance Boots GmbH in 2012, he found that its “headquarters” in Zug was “one of around 50 unrelated companies dealt with by a local business service company, the proprietors of which were none too pleased with the visit.” And, he reported, no Boots employees were present.
All very complicated, yet perhaps rather lucrative for Pessina and KKR. In 2013, a report published by War on Want, Unite and the US campaign group Change to Win, claimed that Alliance Boots had legally avoided paying over £1bn in taxes to the UK since going private. Yet around 40% of the revenues for its British business come straight from the NHS. The campaigners complained to the OECD, the rich-nations’ think tank, about what they saw as a violation of UK tax laws, although the OECD rejected the claim.