Financial Stability: Private Equity Firms

Lord Sikka Excerpts

Wednesday 13th December 2023 Lords Chamber

[Baroness Vere of Norbiton (Con)]

I reassure the noble Baroness that the Treasury works with the Bank of England and other regulators to monitor the system.

[Lord Sikka (Lab)]

My Lords, private equity is part of the £131 trillion shadow banking system, which is largely unregulated even though it is much bigger than the regulated retail banking sector. Recently, IOSCO has said that the high leverage of private equity poses a threat to the world economy, so it is hard to see why the Minister is dismissing that. I ask the Minister to do two things: first, apply the banking prudential regulations to private equity; and secondly, end tax relief on corporate interest payments and thereby reduce private equity’s capacity to increase leverage and cause the next financial crash, which will inevitably be caused by private equity.

[Baroness Vere of Norbiton (Con)]

My Lords, there are £250 billion of private equity assets under management in the UK, versus £10.3 trillion of total assets under management. It is a smaller part of the financial system. The noble Lord is not right to say that it is unregulated: UK private equity managers are regulated under the alternative investment fund managers regime. They must also comply with the senior managers and certification regime.