Will Rachel Reeves scrap the private equity tax break?

I’ve been reading – so you don’t have to – speeches recently addressed to a hot-ticket gathering of business leaders at the Oval cricket ground by Sir Keir Starmer and shadow chancellor Rachel Reeves. The nub is a promise to hold corporation tax at the current rate of 25 per cent for the duration of the next parliament, combined with a warning that ‘levelling up of workers’ rights’ will cause companies’ labour costs to rise. Then there’s all the usual guff you’d expect from a government-in-waiting about infrastructure and skills; plus an unusually warm tone towards the financial services sector, including a pledge not to reinstate the EU-inspired cap on bankers’ bonuses that was abolished by Kwasi Kwarteng.

In essence, Britain’s boardrooms now believe Labour can’t lose the forthcoming election and the City’s chieftains – the likes of Sir Douglas Flint of abrdn, Nigel Higgins of Barclays and Sir John Kingman of Legal & General – have been lining up to join its advisers. So there’ll be lots more supping of Labour’s ‘proudly pro-business, pro-worker’ porridge in the months to come.

But at least there’s one scrap worth watching. Back in 2021, Reeves pledged to close a loophole that allows partners in private equity firms – whom she accused of ‘asset-stripping some of our most valued businesses’ – to pay 28 per cent capital gains tax on ‘carried interest’ profits rather than 45 per cent top-rate income tax. Some 2,550 individuals are reckoned to benefit to the tune of £400 million a year, so it looks like an easy symbolic win for Reeves. And she’s not wrong in the sense that private equity is too often seen as a ruthless profit-extractor rather than a patient investor helping promising companies to grow.

But private equity’s fat cats are fighting back, threatening to invest less in the UK and move themselves abroad if their tax bonanza is taken away.