Please find below the text of a letter that David Frost, Director General of the British Chambers of Commerce, has sent to Gordon Brown concerning the tax status of private equity firms.

Dear Chancellor

We have been following the recent discussions on the private equity industry with great interest. The British Chambers of Commerce acknowledges that private equity managers can take advantage of the capital gains taper relief by using their financial gains as remuneration and effectively paying a lower rate of taxation. However we are greatly concerned that any changes made to the capital gains system or to the private equity industry may have serious implications for the entrepreneurial culture embedded within our membership.

Through private equity, budding entrepreneurs seek to invest in business and in doing so shoulder a certain degree of risk in an attempt to run them successfully. The current capital gains system provides incentive for these entrepreneurs to do so. The vast majority build upon these investments and continue to invest in the UK economy and hence are seen by most, including yourself, as an important driver of growth in our economy. We therefore urge you to ensure that no change to the tax system is considered which would impair the incentives for entrepreneurs. Furthermore, as with the rise in the small firm’s corporation tax rate, we do not want to see the small business community penalised by measures used to combat a perceived form of tax avoidance carried out by a small group of individuals.

Yours sincerely