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| Equity heads defend the industry | |
| (about 1 hour later) | |
| Bosses of private equity firms are defending the industry as they face scrutiny from a select committee of UK MPs over the sector's behaviour. | |
| Carlyle head Robert Easton said the notion that the industry focused on asset stripping was "ludicrous", saying it bought firms for the "long term". | |
| Also present were 3i, KKR, and Permira who echoed this, saying they had helped create jobs in firms they bought. | |
| MP John McFall said during the session the industry needed "sorting out". | |
| The industry has been criticised for using too much debt to finance deals as well as cutting jobs. | |
| The bosses are being quizzed over several issues, including the rate of taxes as well as the time-frame that the industry operates on, as well as employment levels. | |
| Time frame | |
| Union leaders have been calling for the sector to be more tightly regulated, saying it is the workers who have been losing out when private equity firms make acquisitions. | |
| Mr Eastern said that overall, Carlyle had seen employment rise by 10% in the firms it acquired. Others cited similar job creation figures. | |
| "We do a tremendously good job with workers and stakeholders," said Mr Easton, but added it needed to do more with employees. | |
| Private equity funds have increasingly hit the headlines in recent years, snapping up a growing number of UK companies, such as pharmacy group Alliance Boots. | Private equity funds have increasingly hit the headlines in recent years, snapping up a growing number of UK companies, such as pharmacy group Alliance Boots. |
| When asked about how long KKR would keep Boots, it said it anticipated owning Boots "for at least five years" and said it wanted all employees to be satisfied with its pension fund. | |
| Certain cases have become emblematic for unions of what it sees as the negative side of the industry - such as the acquisition by Permira of the AA. | |
| After the AA was bought in 2004, about one third of its workforce of 10,000 lost their jobs. | |
| Taxes | |
| Thanks to tax breaks, private equity firms currently pay just 10% tax on gains made on companies they invest in. | |
| It could be very un-clever to put a heavy tax regime on to the private equity market John Moulton, Alchemy Partners Q&A: Private equity debate | It could be very un-clever to put a heavy tax regime on to the private equity market John Moulton, Alchemy Partners Q&A: Private equity debate |
| Private equity executives pay taxes on their basic pay and bonuses, but a large part of their income comes from carried interest, or the 20% slice of profits they can claim once they have paid back their investors. | Private equity executives pay taxes on their basic pay and bonuses, but a large part of their income comes from carried interest, or the 20% slice of profits they can claim once they have paid back their investors. |
| This money is classed as a capital gain and, as such, is subject to a tax level of 10%. Critics say it should be charged at a normal tax rate. | This money is classed as a capital gain and, as such, is subject to a tax level of 10%. Critics say it should be charged at a normal tax rate. |
| Transparency | Transparency |
| Speaking to the BBC's Today Programme, private equity boss John Moulton conceded that many people involved in the industry were paying little or no tax, but he said it would be unwise to change the system. | Speaking to the BBC's Today Programme, private equity boss John Moulton conceded that many people involved in the industry were paying little or no tax, but he said it would be unwise to change the system. |
| "If the government increases the tax on the private equity industry sharply, a very large chunk of it can move offshore and go from paying some tax to paying no tax," said Mr Moulton, who is chairman of Alchemy Partners, the fund that tried unsuccessfully to buy Rover cars. | "If the government increases the tax on the private equity industry sharply, a very large chunk of it can move offshore and go from paying some tax to paying no tax," said Mr Moulton, who is chairman of Alchemy Partners, the fund that tried unsuccessfully to buy Rover cars. |
| So it could be very un-clever to put a heavy tax regime on to the private equity market." | So it could be very un-clever to put a heavy tax regime on to the private equity market." |
| Recent years have been a golden age of British wealth creation Robert Peston, BBC business editor Read Robert's blog in full | Recent years have been a golden age of British wealth creation Robert Peston, BBC business editor Read Robert's blog in full |
| Last week, Peter Linthwaite, the head of the British Private Equity and Venture Capital Association, which represents the UK's private equity industry, unexpectedly resigned after he was widely criticised for a weak showing before the committee. | Last week, Peter Linthwaite, the head of the British Private Equity and Venture Capital Association, which represents the UK's private equity industry, unexpectedly resigned after he was widely criticised for a weak showing before the committee. |
| The Treasury select committee is looking at four main areas regarding tax levels in the industry: | |
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| Concerning transparency, it is studying such factors as market abuse and conflict of interest, and the ranking of risk. | Concerning transparency, it is studying such factors as market abuse and conflict of interest, and the ranking of risk. |