No verdict on the cards

Store cards are not a rip-off and are charging reasonable rates of interest - so says the Competition Commission.

Actually, the chaps at the commission would probably go bonkers if we were to publish such a report - but that's the hard-to-believe conclusion some will draw after the watchdog yesterday revealed a fascinating little nugget of information.

The commission is investigating store cards after the Treasury select committee attacked it for charging "extortionate" rates - up to 30% - imposing hidden charges and using dodgy sales tactics.

Yesterday the commission issued 10 annexes to a recent document which outlined its work to date. Much of it is technical stuff, but buried on page four of Annex H was a figure - 24% - that will delight store card providers and depress those who reckon they are high-street robbery.

In order to determine whether store cards are a rip-off, the commission's number crunchers produced their own "model of store card economics".

The costs of running the cards and the interest and/or fees some cardholders cough up are taken into account. A bit of profit is thrown in, too. The conclusion is that a "cost-reflective" APR of 24% is about right.

Many people will think 24% seems a bit rich, and not unadjacent to current charges, certainly next to the 9%-10% APR the most competitive credit cards are charging.

If you factor in profits from the payment protection insurance some cardholders buy, that would reduce the APR, but to what level we don't know as the card companies asked that this "market sensitive" figure be excised.

The commission has explicitly said its sums do not suggest what it "might eventually decide to regard as reasonable prices". In other words, don't assume that 24% is a reasonable APR.

But that is precisely what it looks like.

Honourable member


It was commendable of the Canadians to stump up some extra cash for debt relief ahead of tomorrow's gathering of the G7, and Gordon Brown was duly - and publicly - thankful. But the gesture does raise an awkward question: should Canada really be in the G7?

In truth, the answer is no. The changing face of the global economy is reflected in the fact that both China and India have been invited to show up in London tomorrow; not just because between them they represent three-eighths of the people living on the planet but also because both economies are growing fast.

China's development has been the faster and has attracted more attention, but as a study from the Foreign Policy Institute argues, it may be India that has the greater long-term potential. The world's second most populous country has a greater proportion of its population in tertiary education, a far more robust financial system and the untapped resource of the 20 million-strong Indian diaspora around the world. It is already a bit out of date to dub India the global economy's slumbering giant.

As it happens, India will play its traditional second fiddle role to China this weekend because the focus will be on whether Beijing is ready to revalue its currency. The answer, almost certainly, is not yet. In the longer term, it would make sense to make both countries members of a new G6, together with the United States, Japan, the UK and the eurozone. If that is too much for national pride to bear, a second best option would be a G10 - the existing G7, plus China, India and Brazil.

Private returns


European private equity firms received £55bn to invest last year, according to an industry-sponsored survey. That's back to the level of the bubble years, and serious money. But exactly how much, and by whom, is as secret as ever. They are not required to reveal investment performance, file accounts comparable to those of public companies, or disclose details of directors' pay. So naturally, they don't.

But this industry now claims to employ 20% of the UK's private sector workforce. It's too important to the wider economy to hide in the shadows.

Information that does emerge tends to be incomplete and intriguing. The last Companies House accounts for Apax reveal 27 partners split a profit pool of £23m, and that one individual - unnamed, obviously - got £6.4m of it. Over at Alchemy, six of the partnership's eight subsidiaries are incorporated offshore, in Guernsey. Still, at least we learn that £6.1m was "available for division" among five individuals. A note in the accounts suggests they then shared a further £7.2m.

The common worry is these rewards are partly earned by loading a business with debt and milking it for cash. There are counter-arguments, but they would sound more convincing if we had simple facts on balance sheet leverage.

The interesting case is Allders, which collapsed two years after being bought with private equity money. It used to be a stable public company; now, 2,500 members of the pension scheme have real reason to worry.

Maybe its failure had nothing to do with leverage. But if it did, we should be concerned. There is virtually nothing in the accounts of private equity firms to help to assess the risk elsewhere.