Labour leader Sir Keir starmer and shadow chancellor Rachel Reeves met with private equity chiefs to discuss the future of investment in an industry that they intend to target with a £440mn raid on tax.
Starmer and Reeves are conducting a charm campaign with senior executives of investment groups such as Blackstone and Advent International in the US and Brookfield Asset Management in Canada, according to sources familiar with the situation.
The Labor pair used these meetings to discuss the role private capital plays in boosting the economy and financing the energy transformation. Starmer stated in a November speech that private capital would be a game-changer for the UK’s economy.
If it wins power, the UK’s major opposition party will also change the taxation of dealmakers in buyout groups.
Reeves announced two years ago she would close a loophole that private equity executives used to reduce their tax on the share of profits they paid, also known as carried interests or carry.
Labour spokesperson stated on Monday that the policy will be included in the election manifesto to be drafted later this year. She said, “We will close the loophole of carried interest for private equity fund manager,” The party estimates that the change will raise PS440mn per year for the exchequer.
Carry interest is the amount of money that buyout executives get from their fund’s successful investments. These payments are classified as capital gains rather than income and are therefore taxed at a rate of 28 percent, instead of the top 45 percent income tax rate most dealmakers pay.
A person who was involved in the discussion said that the industry accepted it was unrealistic to hope for no changes to the carried interest tax during the Labour administration, but expressed the hope that “reforming the CGT treatment rather than eliminating it was a way to go”.
Starmer’s choice to court this small, but powerful group private-equity executives represents the latest attempt by the leader to reinvent Labour as a business-friendly party in contrast to his “hard-left” predecessor Jeremy Corbyn.
Starmer, the successor to Corbyn in 2020, alarmed UK business leaders by his promises to nationalise major industries, increase corporation tax sharply and seize £300bn in shares of listed companies in a decade.
Starmer, who is aiming to bring the party closer to the center of the political spectrum in the wake of the upcoming general elections next year has increased his engagement with the business community.
According to party officials, Reeves and he have met over 1,000 business leaders during the last three years. In January, the two men met with senior executives of some of Wall Street’s largest investment banks. These included Goldman Sachs JPMorgan Chase Morgan Stanley.
Private equity executives praised Starmer for his willingness to engage the industry, and claimed that Labour was more proactive than Conservatives.
Reeves had previously accused private equity of not paying enough taxes and of stripping assets from companies such as HMV or Maplin. Both of these went into administration.
Michael Moore, Chief Executive of the British Private Equity and Venture Capital Association, said: “While certain aspects can be uncomfortable, the good thing for us is that Labour, in just 18 months, has moved from calling us ‘asset-strippers’, to engaging us openly on how this industry contributes growth to the economy.
Labour’s outreach also acknowledges the growing influence of buyout groups after a decade long acquisition spree. This included stakes in supermarket chain Asda, Morrisons, and Chelsea Football Club. In response to the heightened interest in private equity, UK companies such as THG and Network International Holdings (credit card processor) are currently in takeover discussions with private equity.
According to the BVCA, companies backed by venture capital and private equity groups employ over 2 million people in the UK.