UK - Michael Fallon MP says 'craven' industry has created its own problems

Nathan
22 October 2007

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The following is an extract from an article written by Michael Fallon MP, Conservative MP for Sevenoaks, a member of the Treasury Select Committee and a director of both a private-equity backed company and a Plc. The full article will appear in the next issue of unquote" and Private Equity Europe.

Private equity is private no longer. A very vocal trade union campaign, a divided industry and some grandstanding Labour MPs have pushed it into the realm of public policy-making. Panicking politicians have done the rest.

Within a year of the first shots being fired, we look like ending up with tax rates doubled and reams of new self-regulation.

How did one of the most successful British business sectors over the last fifteen years – one that has helped grow thousands of small businesses and family companies and created hundreds of thousands of new jobs along the way – end up as the new whipping boys of anti-capitalism?

Put it another way – people like Richard Branson and Philip Green, who don’t pay tax here nor have to reveal any details of their private companies, are feted as business heroes, whereas the like of Damon Buffini are publicly reviled.

For private equity it’s been a disaster. And largely of its own making. From the start, the industry was divided.

Some were ready to defend their tax. Capital at risk should not be taxed as income. But others openly undermined the defence of “carry”, questioning their privilege to pay a lower rate of tax than their cleaners. Even the Conservative opposition thought it right to set up their own inquiry.

This led to serious confusion. Few understood that CGT changes could not be isolated to private equity. The result, of course, is that from next April capital gains tax is nearly doubled and everybody must pay more. Even the trade unions have now objected.

On transparency the industry wasn’t so much divided as completely craven. The BVCA formally begged for more regulation. It asked Sir David Walker to draft new codes of transparency. Seeing an open door, other lobbies piled in, urging more and more compliance with all kinds of socio-economic obligations.

The industry needs to speak with a single strong voice, starting with the BVCA, which needs proper leadership, elected, as Jon Moulton has long argued.

Can private equity recover ? There’s much hard work ahead.