Terra Firma chief executive Guy Hands, one of the few private equity professionals who has been willing to publicly defend the industry’s current tax regime, has once again hit back at critics and warned of the dangers of changing the current rules.
In a letter to the Financial Times, Hands denied that the industry was receiving any kind of special treatment, claiming that his own firm alone has paid more than £120 million in tax to the Exchequer in the last five years. He argued that any attack to the current system “will only suck capital, talent and employment out of the UK and into the grateful hands of our competitors in continental Europe”.
Hands said the industry was not “exploiting a series of loopholes”, but benefiting from a 1987 government initiative designed to keep it from heading offshore, by treating private equity partnerships just like any other. This has helped the UK “develop a leading international position”, he said.
Hands also challenged the (increasingly prevalent) view that GPs should not be entitled to treat carried interest – the 20 percent share of profits received by successful managers – as capital gains, because they only contribute around 2 percent of the original fund. Just because this 2 percent was geared, Hands argued, that did not change the risk profile of the capital – so it would be wrong to treat it as income, he believes.
Hands said his own firm chose to base itself in the UK as it believed the government was “committed to attracting talent to the UK over the long term.” The tax system had encouraged executives to base themselves here “in spite of high housing prices and a creaking transport infrastructure”, he suggested, so it would be “extremely unfortunate” if the government changed this system and singled out private equity for special treatment.
In the last five years, Hands claimed, Terra Firma alone had paid £120 million to the taxman and £280 million to advisers, plus the money it has invested in UK businesses. This was the kind of money the UK could not afford to lose, he suggested.
“Private equity may well have done a terrible job to date in explaining itself, but that does not mean it is responsible for the wealth inequality that exists today worldwide,” he concluded.