As The Times reports this morning, private equity bosses made a stern defence of their right to lucrative tax breaks yesterday in front of MPs at the Commons Treasury Committee and insisted their industry was a force for good that created jobs for the British economy.

The bloggers, meanwhile, are divided.

In a post written ahead of of yesterday's Commons meeting, Richard Murphy at the Tax Research blog set out what he saw as the key points:

“The first issue is that the BVCA wanted, and got, taxation by concession rather than by legislation for those with ‘carried interests’ in private equity who happen to be domiciled in the UK. That was an abuse," he argues.

“Second, they claim that this is justified because they are arm’s length investors. But they’re not. They can’t claim to both takeover and reform the management of the companies they buy and be arm’s length investors at the same time. One of these claims is wrong, and I know which one it is.

“Third, the fact that those who are not domiciled here do not pay the resulting capital gains tax is another abuse.

“Fourth the fact that the private equity funds are registered offshore and book profits in locations where it is clear that they do not arise is another abuse.

“But the key economic question is critical, and it’s this. Why does private equity need such substantial state subsidies to survive? If it does should it not like British Railways of old be consigned to the scrap heap, and be succeeded by those who believe in the effectiveness of market competition undertaken on a level playing field? And if not, why not? Because what these people are asking for is a state subsidy for what does not appear to be an ailing industry, or one that adds social value, and I can see no logic to that at all.”

He concludes: “Private equity should pay tax in accordance with the law at the rate everyone else pays, or quit. It’s as simple as that.”

Allister Heath of The Spectator (not really a blog, though Google’s search engine classifies it as one and it gives a neat pro-private equity argument, so we will quote it here) was willing to argue for the staus quo:

“In the present climate, any change will succeed only in punishing one of Britain’s most successful industries while raising little or no revenue for the Exchequer. Trade unions’ calls for huge tax rises on the industry must be resisted,” he says.

“Nicholas Ferguson, who as chairman of SVG Capital is one of the leaders of London’s private equity pack, recently argued that for highly paid executives in his industry to be paying ‘less tax than a cleaning lady’ can’t be right,” he adds. “It’s equally unfair that some people can work in Britain but pay no tax at all. But cranking taxes up to 40 per cent or more for all would be disastrous and would destroy the City’s competitiveness.

“In the short term, the status quo is the least bad option. But over time the real answer is to slash tax rates for everyone, not increase it for a handful of talented financiers.”

There is more pro-private equity argument at the Lightwater blog:

"Tell me, please, when did dinosaur Paul Kenny of the GMB union or the odious Sion Simon MP create wealth and employment. No, thought not, they haven’t," it says.

"What the hell is wrong with people making large sums of money, have we forgotten that the Rockefeller’s and Carnegie’s used their wealth philanthropically to much better effect than any Labour Government.

"So, let’s hear it for private equity from Gordon Brown."

Meanwhile, “Wat Tyler” at Burning Our Money strove to uncover the story behind the story, asking why MPs wasted their time yesterday questioning men such as Damon Buffini, the head of Permira.

“They must realise he's no more than a pawn, doing no more or less than simply following the rules laid down by someone else,” he says. “And that someone else - the evil genius behind the whole rotten business - is none other than ‘Mr Brown’!”

“Consider the evidence,” he implores its readers. “Not only was it he who changed the capital gains tax regime to allow this accelerated taper relief on business assets (introduced in 1998 but accelerated even further in 2002). It was also he who abolished ACT refunds on share dividends paid to pension funds, and thus hugely increased the relative attractiveness of companies funding themselves through debt issuance (see this blog for full, and hopefully not too tedious, explanation). “

“No, Mr Brown is the man: the Professor Moriarty of the New Millennium. He may or may not be benefiting directly in financial terms today, but what evil genius ever did it for the money?”

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