Private equity barons are breathing a sigh of relief as Reeves is forced to give up their bonuses

The Chancellor was forced yesterday to tone down a tax attack on private equity bonuses over fears it would trigger a mass exodus from Britain.

Rachel Reeves increased the tax on carried interest – the portion of investment returns shared by private equity managers – from 28 percent to 32 percent from April next year, and to 34 percent in 2026.

The announcement came as a “relief” for the buyout industry, which feared the bonus, which has helped executives amass vast personal fortunes, was facing a cut of as much as 45 percent.

But the chancellor also said there will be reforms to make carried interest rules “simpler, fairer and more targeted” – casting doubt on the future of the favorable tax treatment.

Private equity groups launched an urgent lobbying campaign against Reeves ahead of the budget, amid fears she was planning to bring the levy in line with the top income tax band.

They warned that this would lead to multi-millionaire buying bosses leaving Britain for countries with more favorable tax regimes, such as Italy, Greece and Dubai.

That would have resulted in lower tax revenue for the government and less investment in Britain, they said.

Michael Moore, chief executive of the British Private Equity and Venture Capital Association, said: ‘It is welcome that the Government has listened to our arguments about the value of the private capital sector and how important it is to the economy.

“Our industry will work with the government as we consult on the implementation of these changes and ensure that any risks of declining investment are mitigated.”

Nicolas Moura, an analyst at private equity data platform Pitchbook, said it was a “good compromise as it involved taxing the carried interest as income at the higher rate of 45 percent.”

He added: ‘We do not believe this will change the course or cause an exodus of private equity from Britain. The highest earners in these companies are typically already located in tax-efficient locations.”

Nimish Shah of consultancy Blick Rothenberg said: “The private equity sector will be relieved if interest rates are hiked by just 4 percent.”

Reeves’ adjustment – which will make the UK’s interest tax higher than Germany, Italy and Spain – will raise just £100 million between 2029 and 2030, according to the Office for Budget Responsibility (OBR).

The estimate assumes that around 12 per cent of income earners – equating to around 360 people – are at ‘high risk’ of fleeing the UK within the next five years as a result of the tax changes.