Labour’s private equity tax raid to exempt managers who risk own capital

Good morning. Shadow chancellor Rachel Reeves has signalled Labour would continue the UK’s favourable tax treatment of private equity executives in instances where fund managers put their own capital at risk.

Labour has vowed to raise £565mn a year by closing the “loophole” that allows private equity managers to have part of their earnings, known as carried interest, taxed as a capital gain rather than as income, which attracts a much higher rate of tax.

Reeves told the Financial Times private equity fund managers should pay income tax on the money they make on successful deals if they had not invested their own capital.

“I don’t think it is right that . . . what is essentially a bonus is taxed at a lower rate than employment income, when you’re not putting your own capital at risk,” she said. But she added: “If you are putting your own capital at risk it is appropriate that you pay capital gains tax.”

Asked whether she expected most carried interest in the UK to be taxed as income under this broad approach, Reeves said: “Yes.”

Read more on Labour’s tax proposals for private equity. We have more on the opposition party’s plans, plus other dispatches from the campaign trail below.

• National Wealth Fund: Labour’s promise to “reindustrialise” the UK through state-led spending in clean energy has been undermined by new analysis showing its plans still represent a cut to public investment.

• UK-EU trade: Labour’s proposals to improve the trading relationship with Europe will have “minimal” impact on reducing the economic costs of Brexit, a think-tank has warned.

• ‘Project A30’: Liberal Democrats have launched a last-minute plan to win back a host of Conservative seats in its former South West heartlands.

Here’s what else I’m following today:

• Putin in North Korea: The Russian president travels to North Korea for a two-day trip, the Kremlin has said.

• Nato: Secretary-general Jens Stoltenberg meets US secretary of state Antony Blinken and members of the Senate foreign relations committee.

• Economic data: The EU has May consumer inflation data, while the US releases retail sales and industrial production figures for the same month.

Five more top stories

1. France’s corporate bosses are racing to build contacts with Marine Le Pen’s far right after recoiling from the radical tax-and-spend agenda of the rival leftwing alliance in the country’s snap parliamentary elections. Four senior executives and bankers told the FT that the left would be even worse for business than the Rassemblement National’s unfunded tax cuts and anti-immigration policies. Read the full report.

• Nato: Dutch Prime Minister Mark Rutte has offered Hungary’s Viktor Orbán a deal as he seeks to end Budapest’s block on him becoming the alliance’s secretary-general.

• EU: Leaders of the 27 member states have requested more time to reach a deal on appointing the bloc’s next slate of top officials.

2. Investment in defence technology start-ups is picking up speed in Europe, says the head of Nato’s €1bn venture capital fund, who believes the region can produce several potential multibillion-dollar companies to rival those in the US as geopolitical tensions push the continent to catch up fast. Here are the groups the fund is backing.

3. Havas will invest €400mn in artificial intelligence and data-led initiatives in the next four years as the French advertising agency prepares to split from parent company Vivendi. Chief executive Yannick Bolloré told the FT the initial work on the four-way break up of Vivendi was progressing ahead of a potential listing of the agency next year. Daniel Thomas has more from Cannes.

• Shein IPO: The Chinese ecommerce group is chasing new revenue streams as it prepares for its London listing, diversifying away from fast fashion and investing in logistics infrastructure.

4. Senior insurance industry executives have said the UK is falling behind in the growing market for in-house insurance as more companies choose to create their own entities to cover corporate risks but in lower-tax and more lightly regulated centres. Read more on how London could attract more “captive” insurers.

5. John Lewis and Waitrose have said “greed not need” is driving record levels of shoplifting as the retail group trials and rolls out tactics to deter thieves. The measures come as the sector fights a surge in retail crime and violence and abuse against staff. Here are some of the security upgrades.

Europe editor Ben Hall discussed the high stakes of Emmanuel Macron’s gamble with snap polls in Saturday’s Europe Express. The newsletter will focus on the French elections for the next few weekends, with free-to-read online editions in English and en français. Don’t miss it!

The Big Read

The economic cost of mosquito-borne diseases has risen to an estimated $12bn a year as the insects become more prevalent and resistant to prevention. Deep in the bowels of Imperial College London, researchers are exploring ways to stem disease that are both ingenious and — in the case of genetic engineering — controversial.

We’re also reading and listening to . . . 

• Fiscal plans: Self-imposed fiscal constraints under Labour and Conservative proposals risk starving the economy of investment needed to boost growth, writes Andy Haldane.

• Choice and consequences: Neither politicians nor the public think straight on immigration, writes Stephen Bush. The problem is that voters aren’t willing to pay for a policy they say really matters to them.

• US Fed: The terminal rate for the upcoming rate reduction cycle depends on when it starts, writes Mohamed El-Erian. The longer central bankers wait to cut, the more the economy risks unnecessary harm.

• Tech Tonic🎧: China is pushing the frontiers of scientific research, launching missions to the Moon and exploring the remotest places on Earth as part of its grand plan to become a tech superpower.

Join Financial Times and Nikkei Asia journalists and an expert guest from the Asia Society at 4pm BST today for a free online webinar: The US-China geopolitical relationship: what is the way ahead?

Chart of the day

Conservative politicians and some headteachers have warned that Labour’s plan to remove a VAT break for fee-paying students could prompt a flight of pupils from the private sector, adding pressure on the state system. But an FT analysis of Department for Education data shows the majority of state schools in England have enough places to absorb an exodus of private school pupils.

Take a break from the news

Senior business writer Andrew Hill selects his best business books of the year so far, including a title that rails against change for change’s sake, an optimistic account of the potential for generative artificial intelligence and a guide to creating “good friction” within business to ensure better outcomes.

Additional contributions from Emily Goldberg and Gordon Smith