Sunday, 24 June 2007


24th June 07

You cannot fail to have missed the furore surrounding the Private Equity sector right now. Indeed, having heard Jon Moulton (Alchemy) being quizzed by John Humphrey's on the Today programme on Saturday, I now see that he has been called before the Treasury Select Committee on 3rd July. I am sure he will put up his usual "robust" performance!

The problem with all this is that I fear that the initial reason why the current CGT regime was introduced will be forgotten and its benefits swept away in order to get a few highly paid PE people to pay a fair rate of tax.

On many occasions I have told of my campaign in the mid 1990s to get the crazy high rate of tax which was payable when entrepreneurs (like me..) sold their companies. I initially sent my case to Kenneth Clarke - the then Tory Chancellor. In early 1997 I was surprised to get a call from Gordon Brown's office - when he was still "Shadow" Chancellor - wanting my input to the debate. As you know, in his first Budget Brown cut CGT on Business Assets to 20% and, in 1999, cut it still further to 10% after 2 years. It has benefited me and many others (including loads of staff in Ovum who bought shares in the company they worked for). Whereas in the 1980s and 1990s went offshore to avoid this CGT, the UK is now one of the best places in the world to set up, grow and sell a business.

To me, applying this low 10% CGT rate to Carried Interest on PE deals seemed wrong. It is more like a Performance Bonus (which gets taxed as Income in all normal companies). The argument that partners invest "their own money" in these deals doesn't wash. The low rates were meant for "real" entrepreneurs who (like me!) mortgaged their homes and ran up huge credit card bills to finance their companies in the early days.

The place that really needs reform is the horrendously complex rules that apply to employee shares and options. That is a real disincentive right now.

Please don't throw "the babies" out with the dirty bath water!

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