Labour appears to be considering a potential dilution of its plans for a tax overhaul targeting private equity, amid concerns that it might deter prospective investors.

Insiders within the party have reportedly discussed the option of scaling back the proposed income tax rate of 45p on deal profits generated by private equity leaders, according to the Financial Times.

Despite worries about the impact on investments, shadow Chancellor Rachel Reeves declared the party’s commitment to moving forward with the plans during Labour’s business conference at the Kia Oval on Thursday. She emphasized the party’s intention to close the “private equity loophole” where bonuses currently evade proper taxation.

Currently, ‘carried interest’ payments in this sector are taxed at the 28 per cent capital gains rate. However, some within the Labour Party, as reported by the FT, are concerned about the potential negative effects on attracting international investment to the UK. Suggestions have emerged that a compromise between the proposed 45p and the existing 28p tax rates could be explored.

An unnamed Labour source conveyed to the Financial Times that there is a “genuine fear” that setting the top rate too high could prove counterproductive. This development comes after a day-long conference attended by C-suite executives, FTSE100 leaders, and investors, where Rachel Reeves confirmed Labour’s commitment to capping corporation tax over the next Parliament to provide increased certainty for businesses.

Labour, led by Sir Keir Starmer and shadow business secretary Jonathan Reynolds, has actively sought to woo the Square Mile and position itself as the party of business, hoping to reshape its electoral prospects. Their efforts extend to attracting venture funding, unlocking pension capital, and enticing state-owned investments to fund the UK’s transition to green energy.

However, the party has faced criticism for wavering on its headline £28 billion green investment policy, with indications that the target may be reduced or even dropped.

With Rishi Sunak expected to call an election before January 2025, possibly later this year, Labour has maintained an average 20-point lead in polls over the past two years.

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Labour considers watering down plans for private equity tax raid