Tax and donations

Tweet I've never been a particular fan of hedge funds, even before I realised that they were giving large sums of money to the Tories. I don't think that there's any justification for turning financial markets into casinos so that the gamblers and speculators can use our money to destroy our economy whilst they get rich in the process.

The news that the Government is planning to extend regulation to hedge funds is news which deserves only half a cheer – better to regulate them than not; but better yet to outlaw them completely.

However, if Brown is serious about looking at the way they operate, he might like to start looking at their tax status as well. Some of them – including the one which donates so generously to the local Conservatives – establish themselves as Limited Liability Partnerships rather than as limited companies. This means that the organisation as such pays not one penny in corporation tax on any profits it makes.

It also means, of course, that the partners are personally liable for all taxes instead, when they take their money out. There is, however, another twist. Rather than paying it in salaries which would be liable to income tax, they can choose to take it out as a trading profit. This completely avoids income tax as well, leaving them to pay only capital gains tax at a much lower level.

So, not only are they acting against the common good for private gain - they also get away with paying much less tax on their income than the rest of us. And that means that they have plenty of cash left over to donate to the party most likely to allow them to continue with their anti-social behaviour. And the Tory party, in turn, seems quite happy to be funded largely by people who pay less tax than the rest of us.