Leading lights of the private equity industry today told MPs their lucrative tax breaks had benefitted the British economy in the face of union demands for reform.

The panel made their claims when they gave evidence to the Treasury Select Committee this afternoon. During a lengthy evidence session, they came under attack from a number of MPs for what they claimed was excessive profiteering and a lack of accountability.

They spoke only hours after Tony Blair told Prime Minister's Questions that "people have concerns about this". The Prime Minister added that the Government was looking into the matter to see if controversial rules needed to be changed, after being questioned by Sir Menzies Campbell, the Liberal Democrat leader.

Much of the controversy comes about because of the unique tax relief available to partners in private equity firms from the "carry" that they earn on their investments, or acquisitions. Because these investments are treated as capital gains for tax purposes they are subject to taper relief, which means that private equity partners - who often contribute some of their own money as part of a deal - end up paying as little as 10 per cent tax, or even less, on the carried interest they book as profits.

One major tax loophole said to be exploited by the industry is that many private equity bosses live abroad to get UK tax breaks.

Only three out of the four men giving evidence to the Treasury Select Committee this afternoon confirmed they lived in the United Kingdom with the other, Dominic Murphy of Kohlberg Kravis Roberts, saying he was based in Ireland and refusing to discuss his tax arrangement saying it was "between myself and the Inland Revenue".

The favourable rules are said to have made Britain one of the most attractive countries in the world for the super-rich.

Asked by John McFall, the Treasury Select Committee chairman, whether they felt the rules should be changed and whether they supported Mr Blair's pledge to investigate the matter, Mr Murphy said the Government should "always review its fiscal policy to see what is best for the British economy".

However, he added that the current system had benefitted the British economy because of the unprecedented success that the companies had brought to the economy. "It seems to me that it has been very successful," he said.

Damon Buffini, head of the British group Permira, said that employment in companies bought up by private equity firms had been boosted, and that most acted very responsibly.

"The review that the Treasury has actually announced is welcome. It has generated a lot of publicity, and that is fine," he said.

"The industry has benefitted from taper relief, and the UK economy has benefitted from taper relief. We have generated business investment in the UK. But I think it is right that it is looked at again."