Tories to kill off private equity funds

There is an interesting (and well briefed) article in today’s Daily Mail, on Tory plans for ‘the most far reaching changes to the economy in a generation.’

One of the ideas being floated by the Tories is to slash corporation tax, which will be paid for by preventing companies from off-setting corporate tax against debt interest. It is precisely this ‘tax loophole’ that private equity funds use to dodge this business tax.

Private equity funds use borrowing to acquire very profitable businesses (that were paying high levels of corporation tax.) But as the new owners are able to offset these profits against that borrowing, they can structure the business so they don’t pay any corporation tax at all.

It gives private equity companies a competitive advantage over other business models that are more prudent and not as reliant on borrowing and debt. The Tories are now talking to the City about their ideas.

Many Labour politicians, driven by their hatred of private capital, would love to kill off private equity funds. Wouldn’t it be ironic if the Tories ended up killing off the private equity fund model as part of their legitimate drive to reduce corporate debt levels?