London's outspoken mayor, Boris Johnson, is again warning that the European Union's proposed Alternative Investment Fund Mananager Directive, as well as proposed UK tax measures, would have negative consequences on London's prime place at the heart of the private equity industry.
We must ensure that we don’t kill the goose that lays the golden egg.
Other recent studies have found that stricter EU oversight would increase compliance costs by billions of euros, cut off investor access to certain funds and force stringent disclosure requirements that would put European funds at a competitive disadvantage to US and Asian funds.
The mayor's study also found that recent regulatory reforms in the UK – including raising the tax rate on capital gains paid by private equity executives – and plans to raise top personal tax rates to 51 percent are reducing London’s competitiveness and causing more companies and individuals to leave the city. Dozens of hedge funds have already moved to Switzerland since the new tax was announced, while other managers may be looking to follow the lead of Terra Firma’s Guy Hands in relocating to jurisdictions like Guernsey and Jersey.
Johnson’s Conservative Party said earlier this month that if it takes power in next year’s elections, it will implement a national insurance tax holiday for new start-ups. While such promises may help with business leaders who have strongly criticised UK reforms such as increasing taxes on non-domiciled residents, a report last month in the Times of London said many UK-based private equity firms are concerned that the EU proposals will still face little resistance even from a Conservative Party government.