Private equity chief accuses rivals of 'bloody wrong' tax dodging

Jon Moulton broke ranks with fellow buy-out tycoons to accuse them of abusing Britain's 'generous' tax system.

And he echoed a warning from Gordon Brown's close ally Sir Ronald Cohen of street riots if the growing gap between the rich and poor is not closed.

His frank remarks put fresh pressure on the Prime Minister and his new Chancellor Alistair Darling to close loopholes enjoyed by wealthy businessmen.

Mr Moulton - founding partner of Alchemy, which tried to buy MG Rover in 2000 - was the latest equity tycoon to be hauled before a Commons inquiry into the industry.

He told MPs on the Treasury committee: "In some cases people are abusing what is already a generous tax regime. There are people who have lived here for 50 years but still not liable to capital gains tax."

Earlier, in an interview with the Financial Times, Mr Moulton said:

"I'm not sure it is riots on the streets yet. But it may not be far away, the way things are going."

Mr Moulton, who insisted he paid too much tax, warned: "The industry certainly pays very low tax and that is not easy to justify.

"There is a lot of advanced tax planning. Buy- out firms are stacking up offshore in ways that look bloody wrong to me."

Private equity bosses move accounts to overseas havens to escape paying a levy of up to 40 per cent on their profits. Partners in the firms also claim nonresident or non-domicile status to avoid paying tax in the UK. It is thought the dodges cost the Treasury £2billion a year.

One leading private equity tycoon has admitted paying a lower rate of tax than his cleaner.

The main loophole, known as taper relief, means wealthy businessmen pay as little as 10 per cent tax on the sale of shares - their main source of income.

Mr Moulton added: "It depends on where you draw the line on tax, people have different views.

"Sir Richard Branson is widely respected yet his business empire is reputed to be largely offshore. A low tax bill - but widely respected."

Of British colleagues who are registered abroad for tax reasons, he said: "However many times I look at this, I find it hard to say that it is correct."

The MPs also questioned Peter Mackenzie of CVC Capital Partners, co-owner of AA and Saga.

The two big-name firms, which are planning a merger, have paid practically no corporation tax since being taken over more than two years ago.

However, their owners - Charterhouse, Permira and CVC - have made gains of £2.5billion.

Earlier, the chairman of an industry-commissioned review suggested to the committee that private equity firms were too secretive.

Sir David Walker, a leading City figure, said he would be urging an increase in transparency when he published his report in a fortnight.

He stopped short of calling for tougher regulation but said monitoring and enforcement may be necessary if equity firms ignored his recommendations.