Private Equity

Lord Leigh of Hurley Excerpts

Thursday 20th November 2025 Grand Committee

[Lord Leigh of Hurley (Con)]

My Lords, I congratulate the noble Lord, Lord Monks, on securing this very timely and important debate. I declare all sorts of interests. I am a founder and current senior partner of the advisory firm, Cavendish Corporate Finance—I am grateful to the noble Lord, Lord Davies, for his comments on the skill and hard work needed in that area. I personally invest in several venture capital and private equity funds, directly and indirectly, and I often negotiate against, and sometimes for, private equity as a professional M&A adviser.

When I started Cavendish in 1988, PE was a new and unknown phenomenon. A most important breakthrough happened when the Treasury agreed that carried interest should be taxed as capital not income, and there were other legislative changes in the 1980s and 1990s that enabled the industry to flourish. Noble Lords may recall the Chancellor at the time who facilitated this—it was not Lawson or Major; it was, to his credit, Gordon Brown. Those who think this is all a terrible, Thatcher-inspired “Greed is good”-era event are wrong. To be fair, there were lots of other hidden benefits at the time for the PE industry, which successive Governments allowed: an unlimited write-off of interest against profit—which is now capped—with that interest going to tax-free funds; base cost shifting, which has now stopped; very advantageous LLP structures, which the forthcoming hokey-cokey Budget may or may not stop; and offshore benefits, which have now been stopped.

However, at that time, the culmination occurred when an unfortunate PE individual boasted, at a House of Commons Select Committee, that he paid less tax than his cleaner. It was all the above, together with some very aggressive behaviour by some operators, which left PE with a very negative reputation. I recall a meeting of a PE-backed company that was behind budget, and the PE executive demanded that someone was fired as a result. They said they did not care who was fired, they just wanted to see someone fired immediately—and they were. As noble Lords will have gathered, I do not have rose-tinted spectacles when looking at PE. I have seen some bad behaviour and some enormous—I mean: enormous—fortunes made by some who really did not contribute much to our economy.

However, that being said, I make the point that, originally, PE was solving a major issue, as typified by RJR Nabisco, when the barbarians at the gate took over a company run by grossly inefficient management, who treated their corporation as a cash cow for their own private excesses. The point is that the capitalist system is the most successful ever created to enhance all our welfare, and it works on the constant need for greater efficiencies to maximise the return to shareholders for their investment. This is what really matters, not the ESG policy or the mission statement—or its purpose or self-declared interest to do good—or all the other fluffy stuff put up to deflect us. A company needs to be measured and assessed overwhelmingly by its return to shareholders on their investment—that is all. If management need to be sacked, they should be, unlike in other sectors. Of course, exploitative behaviour, modern slavery and cartel-like behaviour all have to be banned, but the overwhelming focus needs to be the efficient return to shareholders on their capital.

That matters to many of us in this Room. It matters not to those on the state pension or state benefits, which they enjoy because of state employment, but to those who, like me, have saved and invested in funds which, in turn, have been allocated to PE investments. We need them to succeed, and they are doing so at a time when public markets are sadly struggling because the Government keep failing to stimulate them—I hope the Minister will say more about that. Private capital is needed more than ever.

PE has helped some 13,000 firms in the UK and this Government, who claim to be focused on growth, have done nothing to encourage it. Indeed, they have brought on the disastrous Employment Rights Bill which every trade representative body and pretty much every private business realises will kill growth.

I turn briefly and more importantly, to venture capital, which the noble Baroness, Lady Moyo, touched on. It does an outstanding job in taking a risk that no one else will. As a result, 40% of the UK’s fastest growing 100 companies in the UK have VC money, with £14 billion in tech companies last year.

Since some of the other horror stories I mentioned earlier, the Walker guidelines, which was briefly mentioned, have been implemented successfully and seem to have changed behaviour, so let us try to ensure that PE companies play by all the rules, that investors feel welcomed in the UK and that we celebrate the sharp and necessary focus PE brings to the UK, ensuring that profitability is maximised for all our benefit.