June 20, 2007 / 4:05 PM / in 12 years

Buyout firms defend themselves to UK parliament

LONDON, June 20 (Reuters) - Private equity bosses defended their industry on Wednesday in the face of growing criticism of the way they operate and of tax breaks they enjoy.

Top executives from companies including Carlyle Group [CYL.UL] and Kohlberg Kravis Roberts & Co. [KKR.UL] were answering questions from parliament’s Treasury Select Committee, which is looking into private equity.

“My own experience in private equity in this country has only been positive, it’s been positive for the companies I’ve been involved with,” Robert Easton, managing director of Carlyle Group, told the committee.

“Private equity is a force for good,” said Dominic Murphy, a partner in Kohlberg Kravis Roberts & Co. [KKR.UL].

Private equity firms, which borrow heavily against pools of money raised from pension funds and other large investors to buy companies, have come under fire from unions and politicians in recent months.

But the firms have rejected accusations of slashing jobs and depleting pension funds for their own personal gain, saying they improve businesses and often create more jobs in the long run.

In a memorandum filed with the committee, the GMB union asked that the Treasury “consider the fact that too much private equity investment is now a potential burden on the British economy.”

“The special advantages that the Treasury has offered have been too attractive and private equity funds now control a substantial part of the British economy,” it said.

Top executives pay 10 percent or less tax for much of their profits because of a tax system that was put in place less than a decade ago to spur investment.

Instead of paying the 40 percent income tax, buyout executives domiciled in Britain pay the lower rate applied to capital gains for business investments owned for at least two years.

That aspect has become the centerpiece of a Treasury investigation that also includes questions about the secretive nature of private equity and the amount of leverage they use in deals.

Prime Minister Tony Blair said on Wednesday there were “real issues” over the level of tax paid by private equity firms.

“They’ve been raised right across the political spectrum. They’ve been raised by sensible people within the private equity field itself,” he told parliament earlier.

“The serious way of approaching this is to examine these claims, to look at them carefully and to deal with it in the pre-budget report and that is what, very sensibly, the Chancellor (finance minister Gordon Brown) is doing,” he said.

Other top executives answering the committee’s questions are Permira [PERM.UL] managing partner Damon Buffini and 3i Group Plc (III.L) Chief Executive Philip Yea.

Private equity firms have stayed out of the spotlight for most of the last 25 years, but pushed in front of it this year following union protests and ever-larger acquisitions of household names such as pharmacy chain owner Alliance Boots AB.L.

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