Darling rules out private equity tax hike

Darling defends 'critical' City role
Darling defends 'critical' City role

Alistair Darling has ruled out an immediate change to the tax rules governing private equity firms, warning it could harm the economy.

In an interview with the Financial Times, the new chancellor warned against any tax reforms that could have "unintended" or "undesirable" consequences.

Critics have called on the Treasury to change the tax regime enjoyed by private equity firms, following headlines that private equity bosses were paying less tax than their cleaners.

The Treasury select committee has been hearing evidence from the private equity industry and some within the industry have admitted the preferential tax rate is unfair.

Executives pay standard tax rates on their basic income and bonuses. However, they earn an additional income from carried interest and the 20 per cent share of profits they are entitled to. Because this is classed as capital gains it is only subject to a ten per cent tax rate.

Mr Darling ruled out an immediate change to the tax regime, insisting nothing must undermine the City's "absolutely critical" role in the economy.

The chancellor said any tax changes must be made in the context of what is best for the economy overall.

He pointed to US legislative changes, introduced in the wake of the Enron collapse, to show the dangers of over-reaction.

Mr Darling told the newspaper: "They're now looking at how they can get out of it. There's no doubt it has damaged the US market.

"When or if we make any changes they must be made at the proper time in the context of the Budget or the pre-Budget report and in the context of making tax reform which will be beneficial to the country."

However, private equity officials have told MPs they would not be universally opposed to tax reforms.

John Moulton, founding partner of Alchemy, told the Treasury committee some people are "abusing what is already a generous tax regime".


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