Gordon Brown, the UK chancellor of the exchequer and future prime minister, has told a trade union conference that a government review of the tax treatment of private equity would be published ‘soon’, but refused to be drawn into criticism of the industry.
The Chancellor was responding to the GMB-led outcry over the tax breaks on carried interest enjoyed by private equity executives, an issue highlighted by SVG Capital chairman Nick Ferguson earlier this week. Since carrried interest is currently treated as capital gains, managers can pay as little as 10 percent tax on this portion of their earnings.
The union is also lobbying for Brown to introduce a windfall tax on private equity to cover the deficit on a number of insolvent pension funds at private equity backed firms. According to a report published by the union this week, there are 21 such pension funds in the UK, with unfunded liabilities totalling almost £2 billion. They include companies owned by buyout firms Apax Partners, Candover and Rutland Partners. The GMB is arguing that the UK taxpayer will otherwise have to foot the bill.
However, Brown refrained from criticising the industry, continuing the government’s public stance of support. In March, he said: “I think the evidence at the moment is that private equity has been creating more jobs at a faster rate than some of the other institutional investments in the economy.”
The GMB was quick to claim that Brown’s speech vindicated their stance. “From what Gordon Brown [told] GMB Congress today, GMB conclude that the fat cats are losing the argument on tax and it was very noticeable that he did not leap to the defence of the industry which he has done before”, the union said in a statement.
Treasury minister Ed Balls said in March that the government would be reviewing some of the tax benefits enjoyed by private equity, although he ruled out any review of the tax deductibility of interest payments – another area that has attracted criticism from the GMB.