LONDON (Thomson Financial) - UK Chancellor of the Exchequer Alistair Darling has hinted that his first budget may include reform of the tax breaks enjoyed by the private equity sector, according to a report in The Guardian.
The newspaper said that while Darling was reluctant to criticise private equity firms, he emphasised that the tax system had to be fair and that he would deal with any abuses in the autumn pre-budget report or next spring's budget.
Darling told the paper that he endorsed changes the government has previously made to the system of capital gains tax to encourage entrepreneurship but added he would be "vigilant" about people who "abused the system", or exploited loopholes.
The private equity sector has come under increasing pressure from trade unions and some politicians over the low tax rates enjoyed by leading figures in the industry.
Most partners in private equity firms derive the majority of their income from the profits made from selling on the company's they invest in, rather than a straight-forward salary. These earnings are classed as capital gains and are eligible for taper relief giving them a tax rate of just 10 pct.
One private equity boss recently admitted that he paid less tax than his cleaner.
However Darling refused to be pushed in to any "knee-jerk" decision on the issue.
"There are examples where private equity has brought money in and helped people restructure and carry on trading. Of course, the tax system has to be fair but before you change it you have to have regard to what the consequences will be," he told the told the newspaper.
Meanwhile the Daily Telegraph reported that the influential Treasury Select Committee is planning to release the initial findings of its inquiry into private equity before the House of Commons begins its summer recess on July 26.
The surprise move by the cross-party group of MPs is aimed at informing the political debate ahead of the Labour Party and TUC conferences in September, according to the newspaper.
Michael Fallon, a Conservative MP who sits on the committee, said this interim report would establish the facts behind the trade union claims that private equity bosses are abusing a tax regime aimed at encouraging entrepreneurs.
"This is a sensible approach and will redress some of the Old Labour trade union hysteria", the paper quotes Fallon as saying.
"My colleagues are learning that this is much more complicated than the trade unions make out. We need to be very, very careful that we don't damage the broader enterprise culture."
rachel.armstrong@thomson.com
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