Speaking out: Baroness Wheatcroft
Ministers have been urged to set up an inquiry into private equity’s ‘destructive’ practices and tax affairs.
In a debate in the House of Lords, peers called for regulation of the industry and an end to so-called ‘carried interest’ – a controversial yet lucrative way that private equity partners pay themselves.
The comments follow a spate of private equity deals in recent months including the takeovers of Morrisons, Asda, G4S and Aggreko. Highlighting a string of earlier buyouts that ended in disaster, Labour’s Lord Sikka called for regulation of the industry. ‘The typical business model of private equity includes high leverage, financial engineering, tax abuse, pension dumping, job losses and asset stripping,’ he said.
‘When will the Government commission an independent inquiry into the impact of private equity’s destructive practices on all stakeholders?’
Baroness Wheatcroft, a former Tory peer who sits as a crossbencher, attacked the tax breaks offered by carried interest.
Private equity executives typically take bonuses by sharing profits from a fund and rather than being taxed as income, this so-called carried interest is subject to capital gains – a rate of 28 per cent rather than 45 per cent. Wheatcroft said: ‘Given the need of the Treasury to bring in extra cash, the treatment of carried interest is no longer sustainable.’
Business minister Lord Callanan, however, warned that regulation could detract overseas investors from investing in the UK.
‘We benefit in global terms from being an open and accessible economy,’ he said. ‘That brings in billions of pounds-worth of inward investment. We must be very careful not to send out the message that we do not welcome inward investment into this country.’
