Private equity – the issue that must be faced

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I've spent much of today talking to journalists about private equity. After the weekends appearances in the press people see to have rumbled that I have some interest in the subject. So let me summarise what I've said are the key questions for this week's Treasury select committee:

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.

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.

Forth 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.

Nor, I suspect will the Treasury select committee on Wednesday.

Private equity should pay tax in accordance with the law at the rate everyone else pays, or quit. It's as simple as that.