It’s a rich person’s problem how to minimise tax. Private Equity managers are rich and they stay rich by managing their tax affairs, as they are entitled to , by using non-dom tax concessions and having their revenue taxed as gains not income. There is nothing new about this and for the past 14 years, the chances of either of these tax-advantages being taken away, has been slim.

However, a general election looms and so does the threat , to the private equity industry of both concessions being taken from them. Labour would tax those who make their money in the UK as resident here and would tax their revenues as income (45%) rather than as gains (28%). While paying tax at these rates is nothing like the burden experienced 50 or 60 years ago, it does not make for a happy private financier.

Ludovik Phallipou posted a post in the wake of the FT article featured at the top of the blog.

More than half the 337 votes so far say “just close the loophole” another 15% say bring GCT in line with income tax so only a third of respondents are for keeping the status quo or bringing tax rates for PE managers down.

I imagine that most of those who voted for lower taxes were PE managers so on the face of it, taxing  UK private equity profits at individual’s marginal rates (wherever they live) , looks like a popular policy for Rachel Reeves and the Shadow Treasury Team.

Except

Rachel Reeves is as committed to the deployment of productive finance through UK pensions as Jeremy Hunt and that deployment is dependent on the private equity managers funding local deals through local channels. Driving the PE boys and girls away is not part of the script.

The puzzle facing Labour is that to pursue a capitalist agenda they will have to get into bed with the capitalists. Which is not a pleasant thought if you aren’t a centrist but a grass roots labour activist and a traditional Labour voter. Indeed , protecting private equity managers is unlikely to go down anywhere near the blue wall or anywhere which isn’t benefiting from City profits.

In practice, City profits are part of an increasingly narrow tax base for both Tory and Labour Governments and if we want to broaden the base, we need to get some of the money currently being funneled into corporate debt into productive finance invested in long-term assets.

Much as we might like to see greater equality in our society, driving the hedge fund and private equity managers away, is likely to prove an expensive game of “beggar my neighbour”.

The FT are unsympathetic to the plight of the tax-averse

Increasingly defeat for the industry on this debate, which has been bubbling for more than two decades, seems likely, as it has expanded beyond leftwing corners of politics and tax-minded European countries.

In the US, birthplace of leveraged buyout behemoths KKR and Blackstone, Barack Obama campaigned on it in 2008 and Donald Trump in 2016. Closing the “loophole” also features in Joe Biden’s second term programme.

“They should just move on, stop complaining and pay their taxes,” the private equity entrepreneur said of his friends with itchy feet.

I’m not so sure and I didn’t see much  tax-bashing from Shadow DWP team I listened to from the DWP last week.