UK Chancellor reassures private equity(3)

Alistair Darling, the new UK Chancellor of the Exchequer, has indicated that he will not make immediate changes to private equity’s current tax regime.

UK Chancellor of the Exchequer Alistair Darling has ruled out an immediate crack-down on tax privileges enjoyed by the private equity industry, on the grounds that it could have a destabilising effect on the economy.


Darling warns against tax crackdown

In his first interview since becoming Chancellor, Darling told The Financial Times that any sudden changes to the tax regime could have the same kind of negative impact that the Sarbanes-Oxley Act of 2002 is considered to have had in the US.


Darling said he would always strive to simplify the tax system, but ruled out sudden changes to the tax treatment of carried interest or of non-UK-domiciled individuals. “I think we should be very, very wary indeed of a knee-jerk reaction or a reaction to a day’s headlines into making a tax change that could result in unintended consequences and undesirable consequences”, he said.


Like Sir David Walker at yesterday’s Treasury Select Committee enquiry, Darling highlighted the example of the US Sarbanes-Oxley Act, the legislation introduced in the wake of a number of high-profile corporate accounting scandals, which is widely thought to have had a negative impact on the US public markets.


He said: “There is no doubt [Sarbanes-Oxley] has damaged the US market. When or if we make any changes they must be made at the proper time in the context of the Budget or the pre-Budget report and in the context of making tax reform which is beneficial to the country.”


Darling also sought to play down the recent furore over private equity, driven largely by the trade unions and left-leaning politicians. He said: “We can’t allow ourselves to get into the situation of somehow saying that all incorporated bodies under the Companies Act are good and all private equity is bad – that’s just nonsense – the world is just not like that.”


The Chancellor’s comments will be welcomed by the private equity industry, which has recently come under fire for paying as little as 5 percent tax – if that – on the huge sums its executives have earned from carried interest, the portion of a fund’s profits allocated to the manager. Some have warned that knee-jerk changes to the tax regime could result in many more executives moving off-shore, thus diminishing the tax take even further.