A leading UK private equity executive believes that the industry is at the top of the market and is likely to face a crisis similar to that being experienced by the sub-prime debt market in the United States.

Appearing before the Commons Treasury Select Committee, Jon Moulton, managing partner of Alchemy, said that the US sub-prime market was a very good “prototype” for the private equity industry because it is financed in the same way.

He told the MPs: “You can take a view that we will have the same sort of problems [as the US sub-prime sector] at some point arising out of an overenthusiastic market. At some stage there will be nobody willing to to underwrite fresh debt into the market. That’s what typically precipitates failure in a market like that.”

He said that some firms were already struggling to raise debt.

Pressed for when this slowdown might start, he said that it could be very close, or perhaps a year or two off, but he suggested that it would be sometime in the reasonably near future.

However, the three other leading figures in the private equity industry who were also fielding questions from the committee disagreed.

David Blitzer, senior managing director of Blackstone, said: “I don’t believe there is excessive leverage in the system. There is abundant liquidity, but we don’t believe there is systemic risk in the system.”

Mr Blitzer noted that the due diligence that private equity firms undertake before entering into transactions is of a very different “calibre” from that which exists in the sub-prime market.

He added that he did not expect the size of private equity deals to increase at the same rate as the last few years going forward, but sees them remaining close to present levels.

However, the four bosses were united in their view that the tax system in their industry should be simplified.

Private equity investors enjoy a tax benefit because the majority of their earnings come from “carry” — a share of profits made from selling on companies.

This is eligible for taper relief, which reduces the capital gains tax on the profit to 10 per cent provided that the firm holds its stake in the company for at least two years before selling it on.

This system has come in for widespread criticism from trade unions and politicians as well as from some of the leading members of the industry itself.

Mr Moulton said that the system was not as simple as claimed, saying that he paid a variety of rates on carried interest ranging from 0 per cent to 40 per cent.

However, he added that some long-term UK-based residents were getting around the system using long-term tax planning schemes and sending large amounts of cash offshore.

“In some cases people are abusing what is already a generous tax regime,” Mr Moulton said.

Peter Taylor, the managing partner of Duke Street Capital, went further, acknowledging that he believed the tax paid on “carry” should be raised.

He said: “I don’t think a rate of 15 or 20 per cent [as opposed to 10] would be a material disincentive to entrepreneurs like ourselves to create value over the long term.”

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