U.S. News

U.K. Prime Minister says Private Equity Tax a Concern


Prime Minister Tony Blair said Wednesday that there are legitimate concerns about the level of tax paid by private equity companies and their executives, which the government is studying.

Sir Menzies Campbell, leader of the Liberal Democrats, had asked Blair in the House of Commons whether it was right "for private equity executives to pay tax at a lower rate than those who clean their offices?"

"It is precisely because of the concerns over whether people pay the appropriate level of tax that there was a review set up," Blair said.

"I think it is important to distinguish that particular question, which I think is perfectly legitimate to raise, without condemning all the work that private equity companies do, because I don't think that would be right at all."

Blair's comments come as congressional scrutiny of private-equity firms' tax advantages in the United States intensifies. The U.S. Congress may soon change tax laws that many consider favorable to American private equity firms like Blackstone Group.

The House of Commons Treasury Committee was holding a second round of hearings on private equity taxation on Wednesday. Unions have accused private equity firms of making huge profits and enjoying favorable tax treatment while putting people out of work at the firms they acquire.

"There are real issues here that have been raised, and they have been raised incidentally right across the political spectrum, they've been raised actually by sensible people within the private equity field itself," Blair said.

10% Capital Gains Tax

Criticism of the tax regime has centered on the 10% capital gains rate paid on the "carry," the 20% slice of profits taken after investors have been repaid.

Among those listed to testify was Paul Kenny, general secretary of the GMB union.

He asserts, for example, that employment at the Automobile Association fell from 10,000 to 6,600 since it was acquired by Permira, and that a private equity takeover of Bird's Eye resulted in 600 job losses.

The Confederation of British Industry (CBI), in a submission to the committee, said that firms owned by private equity now accounted for 20% of private-sector employment in Britain.

The CBI cited a Financial Times report that said the 30 biggest private equity deals in 2003 and 2004 produced a net gain of 36,000 jobs.

"Over the past five years, jobs in PE-owned companies grew by 9% per annum compared to 1% in the FTSE 100," the CBI said.

Also expected to testify were Dominic Murphy, partner of Kohlberg Kravis Roberts; Damon Buffini, managing partner of Permira; 3i Chief Executive Philip Yea; Carlyle Group managing director Robert Easton and Blackstone senior managing director David Blitzer.