Private Equity

Lord Wilson of Sedgefield Excerpts

Thursday 20th November 2025 Grand Committee

[Lord in Waiting/Government Whip (Lord Wilson of Sedgefield) (Lab)]

I thank my noble friend Lord Monks for securing this debate and all noble Lords for their contributions this afternoon. It has been an energetic debate that has covered all bases in the discussion around private equity. The role of private equity is a salient issue for the UK economy, and it is important for us to recognise the role that private equity investment plays. I thank noble Lords for their constructive contributions to this thoughtful debate.

Growth is the central mission of this Government, but we recognise that government alone cannot deliver growth. That is why investment is a cornerstone of the economic strategy. The UK’s Modern Industrial Strategy set out the Government’s commitment to enable investment and growth in city regions and clusters across the country.

The growth of private markets has enhanced the types of capital available to the real economy, providing increased competition and diversification. Private equity companies provide capital from investors with a broad range of risk appetites. This has increased the availability of finance for businesses, providing long-term capital and support for business plans that enable those businesses, especially smaller or high-potential firms, to scale and innovate.

For many companies, private equity plays an essential role, from supporting firms to scale up from the venture capital stage to listing on a public market. By offering diverse sources of finance and allocating risk to where it can best be managed, private equity can reduce pressure on the banking system and support broader economic resilience. Capturing the benefits of this global growth in private markets is essential to increasing growth and investment in the UK.

The Government remain committed to ensuring that private market investment is sensible and sustainable, and we are working closely with the Bank of England and Financial Conduct Authority as we pursue reforms to support growth. Some noble Lords will have seen the Economic Secretary to the Treasury making just that point yesterday to this House’s Financial Services Regulation Committee.

As noble Lords will have heard, the Economic Secretary welcomed the work of the regulators to monitor and understand these risks and welcomed the Bank of England’s proposals for a system-wide exploratory scenario exercise focused on private markets. She noted that the Chancellor will ensure that the Financial Policy Committee continues its work on these risks through her annual remit letter to the committee.

I reassure noble Lords that the Government are committed to maintaining high regulatory standards for private markets, including private equity firms. Private equity companies in the UK must comply with the necessary requirements, including the Alternative Investment Fund Managers Regulations and the Companies Act. These regulations help to ensure that fund managers and private companies act responsibly, balancing the interests of investors with those of the wider economy and society. The Government’s ongoing review of the Alternative Investment Fund Managers Regulations seeks to maintain this balance, strengthening protections where necessary while ensuring that regulation remains proportionate and targeted.

The noble Lord, Lord Monks, asked where we are on the Government’s plans to appropriately tax carried interest, and other tax issues. While the Government do not comment on speculation about tax policy outside of fiscal events, I remind the noble Lord that, at the Budget in 2024, the Government announced their proposals to introduce a revised tax regime for carried interest from April 2026, which will put the tax treatment of carried interest on a fairer and more stable footing for the long term while safeguarding the strength of the UK as an asset management hub.

The reforms will increase tax on carried interest, ensuring that fund managers pay their fair share. At the same time, the effective tax rate for qualifying carried interest will be at the top end of international competitors, reflecting the Government’s commitment to fairness while maintaining the UK’s position as a leading asset management hub.

I will now try to answer all your Lordships’ questions; if I miss any, I will write to the noble Baroness or noble Lord concerned. The noble Baroness, Lady Stedman-Scott, and the noble Lord, Lord Davies of Brixton, mentioned the issues around pension investment reform. The Government’s reforms to pensions are designed to improve outcomes for savers and support UK economic growth. Larger consolidated pension schemes can access a broader range of investments, including private markets, which offer the potential for higher long-term returns.

The Mansion House accord is a voluntary industry-led commitment to invest in these assets, and the Government have taken forward a reserve power in the pensions Bill to act as a backstop. Of course, this does not mean we are complacent. The reserve power includes robust safeguards, including a financial detriment test, a sunset clause and a requirement to consult and publish an impact report before use.

The noble Baroness, Lady Moyo, mentioned the capital markets issues. Britain’s capital markets are deep and liquid, with more capital raised in the year to date than the next three European exchanges combined. The Government are not complacent and have taken forward an ambitious programme of reforms to reinvigorate our capital markets, including a once-in-a-generation rewrite of the listings rules.

The noble Lord, Lord Davies of Brixton, mentioned private market valuations. Alongside the Treasury, the FPC and regulators are working to improve transparency in valuation practices and understand leverage and counterparty exposures. Internationally, the Bank, the FCA and the Treasury are collaborating with the Financial Stability Board better to understand cross-border risks in private markets.

The noble Lords, Lord Davies and Lord Leigh, talked about reassurance on regulations. The Government are reviewing and reforming the regulatory framework underpinning the sector, recognising the key role that it plays in growth for the UK. This exercise is not about cutting back regulations at any cost but about tailoring the requirements to the UK market to boost competitiveness and encourage growth. Existing regulations help to ensure that private companies act responsibly, balancing the interests of investors with those of the wider economy, society and the environment. There are a number of requirements imposed through regulations, including the Companies Act, ensuring that private market firms act in a responsible manner.

The noble Baroness, Lady Bennett, asked several questions and raised issues around, for example, social care. The noble Baroness was right to point out that private equity investment has increased in adult social care, with many services now provided by private companies. Under the Care Act 2014, local authorities must shape local care markets to meet community needs, while the Care Quality Commission oversees care standards and operates a market oversight scheme to mitigate risks from provider failures. The Government plan to build a national care service and have commissioned the noble Baroness, Lady Casey, to recommend reforms, including how services should be organised and funded to ensure fair, affordable and high-quality adult social care for current and future needs.

The Government are committed to delivering children’s social care reform in addition to providing over £500 million to refurbish and expand children’s homes and foster care placements. The Children’s Wellbeing and Schools Bill will improve the safeguarding of children.

The noble Lord, Lord Sikka, mentioned asset-stripping and other issues. Private equity can play a constructive role in supporting businesses, but it remains important that such investment is carried out with transparency and responsible ownership. Incidents of value extraction can of course occur, which can be detrimental to creditors, employees and wider stakeholders. That is why there is regulation in place to address this issue. For example, under the Companies Act, directors of all companies are required to have regard in their decision-making to the long term and to impact of the companies’ operations on the community, and they are required to report against these requirements.

We welcome the CMA’s provisional decision report on veterinary services and continue to engage with the CMA ahead of the publication of the final report, which is expected in the spring of next year. As for the water companies, the Government are fixing the water sector’s broken regulatory system. Sir Jon Cunliffe published his recommendations for water sector reform in the summer and the Government have already responded to a number of them.

Private equity is a vital sector for the economy. There is a lot of good in it and probably some other not-so-good issues with it as well, but the Government are looking at all that and remain committed to fostering a dynamic investment environment that supports sustainable growth, innovation and job creation across the UK. We will continue to monitor developments in private markets and ensure that our regulatory framework evolves to meet emerging challenges while maintaining investor confidence and public trust. I again thank all noble Lords who have taken part.