Alistair Darling is refusing to be rushed into changing the tax treatment of private equity, according to Whitehall officials.

Any proposals to increase the amount of tax the industry pays will be put out to detailed consultation, they said.
Speculation about an imminent tax hike on private-equity fund managers intensified last week when Gordon Brown told Labour Party members that the issue would be dealt with in Darling’s first pre-budget report as chancellor, expected on October 17.
Attention has focused on the tax treatment of so-called “carried interest”, a substantial part of the income of private-equity fund managers, which is typically taxed at a capital-gains tax (CGT) rate of just 10% or even less rather than at 40%, the higher rate of income tax.
There have also been calls for the industry to lose the tax relief on interest on the debt that it uses to fund buyouts and takeovers.
Revenue & Customs and Treasury officials have rejected any change in the tax treatment of debt interest, because it would be impossible to isolate private equity from other businesses.
They have also encountered difficulties in increasing tax on carried interest, without undermining the CGT taper system that Brown introduced to encourage entrepreneurs.
Officials are also concerned about “throwing the baby out with the bathwater” if any tax change encouraged the private-equity industry to relocate to other centers.
A failure to take immediate action to change the tax treatment of private equity will anger unions, particularly the GMB and Unite, which have campaigned hard for it and saw Brown’s comments last week as a breakthrough.
Many private-equity bosses appear to have resigned themselves to changes in the tax treatment of carried interests.
Ian Armitage, of HG Capital, one of the leading figures in the private-equity industry, this weekend called for a uniform 20% CGT for private and listed companies.
Armitage said the current CGT system was complex, optional, and inefficient. He insisted that a simplified regime under which everyone paid 20% tax would have no impact on the private-equity industry.
The current tax system rewards companies for holding on to assets for longer periods but Armitage said there was no economic evidence to say that holding an asset for a long time was preferable to holding it for a shorter time. The reverse was true, he said.
Charles Sherwood, partner at Permira, the private-equity firm, said last week, “It is important that any tax system is seen to be fair and consistent and the one thing that we would look for is that it is reasonably competitive internationally.”
(Source: The Sunday Times)