Labour leader Sir Keir Starmer and shadow chancellor Rachel Reeves have held a series of meetings with private equity bosses to discuss future investment from an industry they plan to hit with a £440mn tax raid.
Starmer and Reeves have been conducting a charm offensive with senior executives from investment firms including US-based Blackstone and Advent International and Canada’s Brookfield Asset Management, according to people familiar with the matter.
The Labour pair have used the meetings to talk about the role they see private capital playing in boosting economic growth and financing the energy transition. Starmer said in a speech in November that private investment would be a “game-changer” for the UK economy.
But the UK’s main opposition party has also confirmed it will change the way dealmakers at buyout firms are taxed should it get into power.
Two years ago Reeves said she would end a loophole used by private equity executives to reduce the amount of tax they pay on their share of the profits, known as carried interest, or carry.
A Labour spokesperson said on Monday the policy would be in the election manifesto, set to be drawn up later this year. “We’ll end the carried interest loophole for private equity fund managers,” she said. The party estimates the change would raise £440mn a year for the exchequer.
Carried interest is the money buyout executives receive from successful investments made by their funds. The payments are classed as a capital gain rather than income, so they are taxed at 28 per cent, rather than the 45 per cent top income tax rate that most dealmakers pay on their salaries.
One person involved in the discussions said the industry had accepted it was unrealistic to expect no change to carried interest tax under Labour but expressed hope that “reforming it rather than abolishing CGT treatment was a possible way through”.
Starmer’s decision to court this small but powerful group of private equity executives is the latest move by the leader to try to reinvent Labour as a pro-business party, in contrast to the approach adopted by his “hard left” predecessor Jeremy Corbyn.
Corbyn, who was replaced by Starmer in 2020, had alarmed UK business leaders with his pledges to nationalise key industries, sharply increase corporation tax and seize £300bn of shares in listed companies over a decade.
With the next general election expected at some point next year, Starmer has stepped up his engagement with business as part of a strategy to move the party towards the centre.
Along with Reeves, he has met over 1,000 business leaders in the last three years, according to party officials. In January during a trip to Davos the two met senior executives from some of Wall Street’s biggest investment banks including Goldman Sachs, JPMorgan and Morgan Stanley.
Private equity executives said they were impressed by Starmer’s willingness to engage with the industry and said Labour has been more proactive than the Conservative party.
Reeves has previously criticised private equity for not paying enough tax and accusing it of asset-stripping companies, such as HMV and Maplin, both of which went into administration.
Michael Moore, chief executive of the trade association British Venture Capital and Private Equity Association said: “While some aspects can be uncomfortable at times, the good news for us is that Labour has gone in 18 months from talking about ‘asset strippers’ to openly engaging with us on how the industry contributes to growth in the economy.”
Labour’s outreach is also a recognition of the growing influence buyout firms hold after a decade-long acquisition spree, including stakes in supermarket chains Asda and Morrisons and most recently Chelsea Football Club. As part of the surge in interest, UK businesses including THG and credit card processor Network International Holdings are currently in takeover talks with private equity.
Companies backed by private equity and venture capital firms now employ more than 2mn people across the UK, according to the British Private Equity & Venture Capital Association.