Brooks Newmark, a Conservative member of the UK parliamentary committee investigating private equity and a former partner of US buyout group Apollo Management, has warned the UK Chancellor to meddle with capital gains tax at his peril.
In an interview with PrivateEquityOnline, Newmark said: “Gordon Brown has to be very careful. If he wants to increase tax on carried interest, he has to fiddle with the capital gains tax regime. That will only add to the complexity and with complexity comes loopholes, which only the rich tend to be able to exploit.”
His comments come the day after Peter Linthwaite resigned from his post as chief executive of the BVCA, the UK’s private equity and venture capital association, after receiving a drubbing at the hands of the committee earlier this week.
The trade body was caught on the back foot over the issue of taper relief, which is widely used by buyout and venture firms to mitigate capital gains tax liability to ten percent or less. A number of industry figureheads, including Nick Ferguson of SVG Capital and Apax Partners founder Sir Ronald Cohen, have however conceded the rate of tax is too low.
Newmark called the BVCA’s performance in defending the industry “lamentable”.
However, he said: “The ferocity of the committee was surprising. I don’t criticise my colleagues, but it was clear Gordon Brown has signalled to his people on the select committee to go for it and soften up the industry ahead of some sort of change to taper relief.”
Newmark said he could see the holding period to qualify for taper relief going up to five years from the two year time frame introduced by Gordon Brown to encourage entrepreneurship.
He said he was disappointed the debate had narrowed to the tax issue, when there were more substantive issues to consider. After the evidence session Newmark continued a heated debate with Angela Eagle, a Labour Member of Parliament, in a hallway outside the committee room.
Eagle had attacked Duke Street Capital for the firm’s unavailability to discuss planned job cuts at Burton’s, a biscuit manufacturer in her constituency. The firm had in fact booked a meeting with her secretary. Newmark said her “parochial” concerns came at the cost of a wider discussion about private equity.