MPs are preparing to cross-examine private equity chiefs in public over allegations of asset-stripping, short-termism, lack of accountability and other criticisms.

The Treasury Select Committee announced yesterday it would hold an inquiry into the industry in the wake of the furore of the past few weeks.

It said the decision was taken in the light of the Financial Services Authority’s discussion paper into the regulatory risk of private equity and the decision by the industry to organise a working group under Sir David Walker into better disclosure.

John McFall, chairman of the committee, told The Times that the Walker initiative was “an attempt at self-regulation. Parliament is taking the opportunity to scrutinise that.”

Details on the terms of reference and timing of the inquiry would be included in a call for written evidence in due course. Once written submissions are in, the committee will summon witnesses and the inquiry could put the spotlight on some of the most media-shy financiers.

Trade unions have conducted a lively campaign to bring the industry under closer scrutiny and to reform the tax regime under which private equity thrives.

The GMB attacked the industry after the AA, the private equity-owned roadside rescue company, admitted that its cost-cutting had gone too far.

Pressure has also intensified from the Transport & General and from the shopworkers union Usdaw since private equity bidders confirmed they were interested in taking over J Sainsbury.

GMB general secretary Paul Kenny welcomed the inquiry: “We have been calling on MPs to look at practices in the private equity industry, particularly the tax regimes that apply.”

The British Venture Capital Association also welcomed the move and said it would be happy to give oral evidence if invited so to do.

The committee also announced plans to examine competition in banking and the future of free banking. Mr McFall said that the banks had just reported profits collectively of £40 billion and it was time to reexamine competition seven years after the Cruickshank review.

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