Lord Hollick, a partner at Kohlberg Kravis Roberts, warned the UK government any changes to the capital gains tax taper relief could push the private equity community out of London and into mainland Europe.
Sir Ronald Cohen, co-founder of Apax Partners, welcomed a debate on the appropriate level of tax given the way the industry has changed in the last half a dozen years.
Both spoke on the Today Programme on the BBC’s Radio 4 this morning. Their comments are sure to stoke the debate on tax triggered by SVG Capital chairman Nick Ferguson’s comments in an interview, when he said most private equity executives paid less tax than their cleaners.
The UK Parliament’s Treasury Select Committee investigating private equity is paying the industry’s tax arrangements particular scrutiny and will be grilling Dominic Murphy from Hollick’s firm among others today.
Hollick said: “You need to tread very carefully when you adjust or alter one aspect of the tax regime, so you don’t run the risk of reducing the attractiveness of London as a financial centre. Continental Europe looks jealously on and would to attract the activity away.”
He said: “Successive governments brought in the tax regime to ensure London’s financial centre is sustained and grows and in particular a strong private equity component. Capital gains tax should be reduced in order to promote risk investment.”
Government should be congratulated for “two great public goods”, he added.
However Cohen, co-founder of Apax Partners, said: “It is perfectly reasonable to look again at the issue of tax.” He said because fund sizes had increased hugely, the nature of the risk profile had changed.
Cohen proposed the first £500 million of a fund would benefit from a lower rate of tax for carry than the subsequent sums after that. He said the key was to maintain incentives for entrepreneurship and risk taking by venture capitalists and private equity investors as well.
He said: “People don’t take risk if there is no financial incentive to do so. We have lived through those years. I hope we never go back to them.”
Click here to listen to the transmission.