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MPs calls for more scrutiny of private equity

The Treasury select committee has urged the Treasury, HM Revenue & Customs and the Bank of England to investigate areas of strong concern the MPs have articulated regarding private equity.

The TSC’s interim report into private equity, published today, calls on the Treasury and HM Revenue & Customs to consider the tax treatment of carried interest as part of their reviews of employment-related securities.

It calls on HMRC to write to the committee to further explain the memorandum of understanding between the department and the private equity industry amid concerns it is not being properly interpreted by some.

The MPs also urge the Bank of England to examine the potential impact of an economic downturn, both on leveraged firms and on the wider economy.

The report steers clear of suggesting a hard line clampdown on the sector and welcomes Sir David Walker’s proposals for self regulation within the industry.

It says his guidelines on increasing transparency, to be published this Autumn, need to include board statements by relevant portfolio companies setting out their approach to stakeholders and company strategy, annual reviews by general partners and reports on the level, structure and conditionality of debt.

The report noted the concern about the non-domiciled status of many individuals in the industry and called on the Treasury and HMRC to update the committee on its work in this area to “demonstrate that they have a rigorous approach towards claims of non-domicile status”.

The MPs also highlighted the need to ensure company pension fund commitments are securely funded, and said it was a matter they would return to when the inquiry resumes in the Autumn.

The report says: “We recognise many aspects of the private equity industry are highly complex and a short inquiry cannot do full justice to them. We have been correspondingly cautious in our conclusions and recommendations, preferring in most cases to highlight areas of concern or ask questions we can return in the Autumn.

What is clear is that there are areas of concern which deserve continuing attention from policy-makers.”

Association of Investment Companies director general Daniel Godfrey says: “The report is a balanced and fair attempt to separate reality from the hype and hysteria. In particular, the welcome given to the work of Sir David Walker is most encouraging and I hope that the industry will be able to use the coming months to turn the philosophical approach into a framework of practice that addresses any legitimate concerns whilst preserving the essential commercial flexibility of the sector.”


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