It is a politically smart bit of heartstring-tugging. Labour’s manifesto pledged that it would pay for 8,500 new mental health workers and other good causes by tightening the tax rules for wealthy private equity executives. Uncontroversial for most voters. But within this vast industry, huge efforts are being made to persuade the UK’s new chancellor Rachel Reeves to water down her plans to generate an extra £565mn from closing the “carried interest tax loophole”.
In 2017, Italy introduced a new regime, taxing carried interest at 26 per cent, instead of the 43 per cent of higher-rate income tax. Ireland taxes carried interest at barely half the UK rate. So far neither country has made huge inroads in attracting private equity executives. London remains the unrivalled European base for the sector. The more substantive point of principle is also moot.