Private Equity

Lord Monks Excerpts

Thursday 20th November 2025 Grand Committee

Asked by

[Lord Monks]

To ask His Majesty’s Government what assessment they have made of the role of private equity in the UK economy.

[Lord Monks (Lab)]

My Lords, I am grateful for this opportunity to revisit one of the darker corners of the financial services sector and to see what has altered since noble Lords last debated the issue in 2022. The excellent Library brief defines private equity as “a managed fund”, aiming to secure “a controlling share” of established companies, then, after a few years, to sell the companies on at a profit. The funds typically aim to sweat the assets as one of the ways of increasing profits. By sweat I mean sales of property, reductions in staff and sometimes their pay, cutting back on investment in new products and services, sometimes reducing maintenance and using the high debt involved to reduce tax. Growing the business is a stated aim but often turns out to be a second-order objective.

In addition, fund managers secure their remuneration by aiming for a share of the profits—often around 20%—and by interest payments and dividends. These are taxed at a lower rate than the higher rate of top income tax. Compensation arrangements are complex, but PE takes full advantage of what is known in the City as the carried interest loophole and sometimes as Wall Street’s favourite tax break. The rewards at the top often contrast with the meagre rewards for the staff in PE companies.

In the union world, we became aware in the mid-2000s of hostile buyouts fuelled by PE. They were associated with job losses, depressed wage growth and union derecognition in some cases. We learned that company managers we dealt with no longer had the same authority and decision-making power. The PE fund was the boss, and the employees were often demoralised.

The British Private Equity and Venture Capital Association responded to concerns by setting up a standards-setting exercise involving Sir David Walker and later established a PE reporting group on which my noble friend Lady Drake serves. This was welcome, but concerns remain. I confess that when the banking crisis broke in 2008-09, my first thought was that highly leveraged private equity and its cousin hedge funds were major factors in it. I was wrong. The explosion was triggered on subprime mortgage markets. The question still in my mind is that private equity and its high leveraging could cause a massive problem with instability and company failure.

Things have moved on since the mid-2000s, but there are signs of a revival in PE. According to the FT just 10 days ago, there is developing in Germany in particular an impetus for major household-name companies—I will point out just one: Volkswagen—to sell off non-core divisions to PE, which would do the dirty work of asset sales including job reduction. The tax deductibility of interest payments on debt creates an incentive for PE funds and others to borrow to buy, even though the Finance Act 2017 restricted some activities in this area. One of the criticisms made of Unilever in the context of a takeover bid by Kraft was that its balance sheet was insufficiently leveraged. Unilever is over 90 years old. Will any PE-fuelled companies endure and prosper like that?

Anyone who has looked at the history of PE will have seen some of the horror stories. My noble friend Lord Sikka mentioned some of these in the debate in 2022. I just pick out one: Toys R Us was a well-known retailer in the US and the UK. It was taken over by Bain Capital and Kohlberg Kravis Roberts, stellar names in the PE world. Staff and benefits were cut, and interest expenses consumed 97% of the company’s operating profits. The company was still paying interest on loans to KKR and Bain until 2016; it is small wonder that it collapsed.

Currently, I am particularly concerned about PE operations in the social care sector. According to the Guardian on 12 November:

“Private companies operating … in … three regions of England have taken more than £250m in profits in three years”


from their social care activities,

“with more than a third going to … private equity firms or companies based in tax havens”.

This is a lot of public money going astray. I think that PE should not be allowed anywhere near social care.

I could go on with other examples of poor behaviour, but it would be more interesting to hear advocates of PE listing positive examples where, as a result of the actions of PE, companies have been transformed from laggards to dynamic and sturdy firms. Do any such examples exist? Where are the successful poster boys for private equity?

I recognise that private equity is a substantial part of the UK economy. It is too big to ignore. The Governor of the Bank of England, Andew Bailey, has recently announced that the Bank is planning to run a series of tests of private equity and credit firms. This follows some problems in the United States. The governor is seeking to discover whether these are isolated examples or, as he put it, a “canary in the coalmine” indicating wider systemic problems. This is important work by the Bank.

I appreciate that the Government are desperate to boost growth and seek new investment, especially on necessary infrastructure improvements. They are always looking for new sources of capital, but is private equity contributing or is it undermining traditional ways of investing in business, such as issuing new equity?

Do the Government have any current concerns about the role of private equity? Do they see any need for further regulation for PE or, more widely, the shadow banking sector? Are there plans to remove the tax advantages of debt relative to equity? Where are we on the Government’s aims to tackle the injustices of carried interest? This is an area that needs considerable scrutiny, and I hope that this short debate can help stimulate that further scrutiny.