大象传媒

Private grief

• Robert Peston
• 4 Jun 07, 08:43 AM

Nick Ferguson has big boots in the UK private equity industry: he is the creator of the business which mutated into Permira, the London-based private equity giant, and the chairman of , the leading subscriber to Permira鈥檚 funds.

As such, it is hard for private equity firms to dismiss him as a marginal character or someone with a prejudiced hostile attitude to their industry. So his remarks 鈥� as 鈥� will engender anxiety in the pricier rental districts of London鈥檚 West End where private equity firms are based.

Ferguson said: 鈥淎ny common sense person would say that a highly-paid private equity executive paying less tax than a cleaning lady or other low-paid workers... can鈥檛 be right.鈥�

He was apparently referring to capital-gains-tax rules introduced by Gordon Brown as Chancellor which allow private equity executives to pay tax at a rate of just 10% on their share of the profits (known as the 鈥渃arry鈥�) on a corporate buyout. 鈥淚 have not heard anyone give a clear explanation of why it is justified,鈥� said Mr Ferguson.

Well, one explanation might be that an industry valuable to the UK would emigrate to another financial centre without this tax break, to the detriment of growth and jobs here. But even if you think the presence in London of a substantial private equity industry is great for Britain 鈥� and there are plenty of people who don鈥檛 think that 鈥� it is moot that the industry would up sticks were the tax rate to be increased a bit.

In a world where it is fairly straightforward for highly remunerated executives to work in one place and live for tax purposes in another, there鈥檚 a painful rub for Her Majesty鈥檚 Revenue and Customs. One of the reasons why the private equity industry probably would not flee is that many of the leading private equity players at London-based firms don鈥檛 even pay the 10% tax, because they are not based here in terms of incurring a liability for personal taxation.

The risk for Gordon Brown and the Treasury in increasing tax on private equity is that many more private equity executives 鈥� large numbers of which are not British subjects 鈥� would find legal ways to avoid paying any tax at all: so even more of them might end up with a lighter tax burden than their office cleaners.

The debate about tax therefore is only half the debate. The central issue 鈥� the one being examined by the Treasury Select Committee 鈥� is whether private equity makes a positive or negative contribution to this country in a much wider sense.

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