At Portcullis House, ( which houses the Members of Parliament’s offices) on November 26, the day before the UK pre-budget report, the British Venture Capital Association (BVCA) unveiled its economic impact of private equity in the UK study. The BVCA estimates that private equity-backed firms pay $35 billion in tax per annum. It also estimates that private equity-backed firms account for the employment of around 2.9 million people, equivalent to 16 per cent of the private sector workforce. If not compelling enough for the MPs present the BVCA also unveiled data on employment growth rates, sales growth, investment rates and export growth – see tables below.
The BVCA took the opportunity to state the areas it would like to see the government tackle. First noted as a rise in income tax relief from 20 per cent to40 per cent on Venture Capital Trusts. In his speech Michael Queen, chairman of the BVCA, noted that VCT fund raising had fallen from previous levels of £400 million per annum to an expected value of just £100 million this year.
Second was the issue of raising the Inland Revenue approved share option schemes ceiling to £100,000 from its current £30,000. It was argued that many holders of share options, because they are not part of approved schemes, are forced to sell their shares when they are exercised and that it could be more beneficial for companies for managers to remain stakeholders in the business.
Thirdly the BVCA and its members would like to see the abolition of capital gains tax (CGT) taper relief meaning that CGT would go straight to ten per cent for business assets and 20% for other assets.
Fourthly, a centre of excellence for private equity within the Financial Services Authority was suggested. Queen noted that the UK and Singapore are the only two regulated private equity industries in the world and rather than doing away with regulation in the UK he suggests a centre of excellence as a way of ensuring the industry is not bound in regulation.
Finally, Queen talked of cultural change. Queen is finance director of 3i and he noted that when 3i UK offices visit schools career aspirations run to the professions, whereas the 3i Menlo Park office finds students aspiring to careers in business.
UK annual employment growth rate
Private equity-backed firms 23%
National average 1.5%
UK annual growth in sales over the five years since 1996/7
Private equity-backed firms 30%
National average 3%
UK annual investment
Private equity-backed firms 25%
National average 2.3%
UK annual exports
Private equity-backed firms 20%
National average 2.9%