Isn’t Prem Sikka Just Full Of It Over British Steel

Quite obviously the failure of British Steel is going to be the result of neoliberalist capitalism. Well, when diagnosed by Prem Sikka of course. For everything is the fault of neoliberalist capitalism, presumably up to and including the dreadful lack of a decent pastie in the shops. This does not excuse though the manner in which the blame is assigned.

For Prem Sikka is actually an accountant, even a professor of the subject. Meaning that he should be able to read a flow of funds statement. At which point we’ve either got to conclude that he can’t, or that he’s lying. My own bet here is incompetence:

The same problems are being highlighted by the collapse of British Steel, with more complications added by the involvement of private equity and its opaque corporate structures. Information filed at Companies House shows that the total amount of share capital provided by Greybull to BSL is £1. This enabled it to control the entire board of directors. The directors kept the business afloat with loans, especially intragroup loans. These included a £154m secured loan from its ultimate controller, Jersey-based Olympus Steel 2 Limited.

Jersey does not levy corporation tax on profits made elsewhere and does not require companies to publicly file their accounts. The intragroup loan carried an interest rate of 9% + Libor. This arrangement resulted in BSL becoming liable for interest payments of £17m in 2017 and in 2018. Greybull also charged a management fee of £3m per annum. Interest payments qualify for tax relief and this would have enabled BSL to reduce its UK tax liability. The amounts received by its Jersey parent company would have been tax free. Cash extraction on this scale completely constrained BSL’s ability to invest and remain competitive, and turned the 2017 pre-tax profit of £92m into a 2018 loss of £29m. Its cash balances shrank from £35m to £5.1m.

You can see the statement there. British Steel doesn’t have any money because they paid it all to Greybull in interest.

Except, of course, they didn’t:

The spokeswoman said Greybull was charging such a high rate of interest on its loan because of British Steel’s low credit rating. She added that British Steel had yet to pay the interest bill to its owners. “Most importantly no interest has been paid by British Steel to Greybull since our acquisition of the business in 2016,” she said. “All interest has been accrued and not paid. This has been done in order to support British Steel’s financial position through its turnaround.”

Prem Sikka’s full of it, isn’t he?

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Phoenix44

Worse, what does he think the interest accrues on? Money invested in the business. So he’s complaining that BS paid interest because it was investing!

And what’s tax if not a decrease in what can be reinvested from profits? How could paying tax posticky have meant more investment?