Make super-rich bosses pay more tax says Osborne

Shadow Chancellor George Osborne is trying to take the high ground in the escalating debate over the ten per cent capital gains tax rates for the super-rich bosses who have been buying up British companies from Boots to EMI.

This week it was revealed that only one in six of those earning more than £10million a year is paying tax on their earnings - with the rest using loopholes to dodge the burden.

One leading private equity tycoon admitted that a tax break on share sales meant he pays a lower rate of tax than his cleaner.

The loophole, known as taper relief, means wealthy businessmen pay as little as ten per cent tax on the sale of shares - which is effectively their main source of income.

In a clear sign that he wants the capital gains rate paid on most of private equity partners' income to rise, Mr Osborne told the Daily Mail: 'If it looks like income then it would be peculiar not to tax it like income.'

That means bosses including Damon Buffini at private equity group Permira, coowner of the AA, would likely face 40 per cent tax rates, in line with other high earners.

Mr Osborne remains fearful that if the tax increases are seen as too draconian, the private equity business - which has delivered jobs and prosperity - could move to Geneva or elsewhere.

But in the interest of fairness he believes that the tycoons should face the same taxes on income as everyone else in Britain.

The Shadow Chancellor's decisive promise contrasts sharply with the tentative approach of Gordon Brown and the Treasury.

The Prime Minister-to-be has asked Her Majesty's Customs & Excise to review the issue and hinted that there could be some changes proposed in the Pre- Budget Report late next autumn.

Labour has been anxious not to be seen as anti-business and does not want to see the private equity business, which includes substantial party donors, driven offshore.

Mr Osborne's intervention comes at the end of a torrid week for the publicity-shy industry.

The tycoons from the largest buyout funds were accused of 'taking the mick' with their massive payouts during a grilling by the Treasury Select Committee.

But Mr Osborne also is trying to take the sting out of a wide-ranging row he fears will prompt tax changes that could penalise millions of smaller business leaders.

'If it looks like genuine risktaking and entrepreneurship then we should do everything to encourage it,' he said.

Mr Osborne has commissioned the European School of Management, a leading British based business school, to conduct a review the issues.

He wants the review to investigate how the UK can improve the environment for enterprise and venture capital.

He wants to avoid damaging Britain's competitiveness, reward risk-takers and those that take a long-term view on investment. It will report back this autumn, before the Treasury is due to publicise its own findings from an 18-month long examination.

Guy Hands, one of Britain's most prominent financiers, is calling on firms to take fight back by lifting the veil of secrecy.

He issued a dire warning that the private equity industry was viewed 'somewhere just above politicians but definitely below traffic wardens'.

Mr Hands, who is poised to take control of music company EMI in a £2.4billion deal next week, said firms should emulate entrepreneurs such as Sir Richard Branson or easyJet founder Stelios Haji-Ioannou, who run their companies in a similar way but have succeeded in courting consumers.

He added: 'We have to be counted. We can't run and we can't hide.'

Industry bosses have admitted that the light tax on their 'carry' - their stake in buyout deals - is overly generous.

Meanwhile, the industry's trade body, the British Venture Capital Association, challenged politicians to haul in the banks that grant them risky loans.

So called 'covenant- lite' loans, which have fewer financial heath checks built in, have drawn criticism from Bank of England Governor Mervyn King.