Overview: clear thinking

Sir David Walker, the City grandee charged with making private equity more
transparent and more acceptable, has form in dealing with thorny City issues and
their impact on UK competitiveness.

In 2000, when earlier attempts to get stamp duty on shares were being pushed,
Sir David, then at Morgan Stanley, was among those urging the chancellor to drop
the tax or risk seeing trading go abroad.

‘A process of corrosion is in train, which over time will damage both tax
yields and UK competitiveness,’ he said at the time.

Seven years on, the UK is as competitive as ever. So why is he the person
charged with reserving private equity from the unions?

What’s happened?

Sir David was tasked by the British Venture Capital Association with chairing
a working group to look into transparency.

The challenge facing him could not really be greater. Whatever else you could
say about private equity, it is certainly not transparent.

Who are the investors? How is the money distributed? Does it disappear
offshore? And what is the treatment of debt and equity in those tax structures?

All of those are key questions that need answering, but it seems equally
likely that private equity will want to use the opportunity to emphasise its
smarter operating methods, its higher productivity, job creation, and use the
opportunity to stress the positives as well as the negatives.

What’s going to happen?

Sir David will be under huge pressure to please all parties. There is a
strong whiff of the hard left politics of the 1980s in the union attacks, and
any suggestion that the former

Morgan Stanley and Treasury official is soft on business will be seized on to
suggest a whitewash has been carried out, and lead to demands for regulation.

The noise from the Treasury is that they are unsympathetic to the wilder
union claims, but given the party’s increasing financial reliance on their
traditional paymasters, a Brown government might see its hand forced.

Sir David’s reputation in the City, meanwhile, requires him to defend its
interests as best he can. If they feel his advocacy has been weak, they will
feel sorely let down.

He has an opportunity to define how private equity is perceived for a
generation to come. But his work, if unacceptable to one or more parties, could
equally lead to an escalation of an already bitter war.

For more to go

Related reading