The bosses of some of Europe's biggest private equity firms are being quizzed by MPs on whether the sector is enjoying unfair tax breaks.

At this afternoon's Treasury select committee hearing, the first of three scheduled on the issue, partners at groups such as Permira, KKR and 3i will give evidence amid allegations private equity firms use too much debt to complete takeovers and subsequently lay off too high a proportion of employees.

Private equity takeovers have attracted increasing controversy in the last year, with high-profile companies such as Alliance Boots being bought out in 2007.

Unions claim that the shadowy firms should be subject to further scrutiny. Ahead of toady's committee meeting, GMB spokesman Paul Maloney said that private equity groups were operating under a "shroud of secrecy".

Citing the example of pension funds, he told the Today programme: "The GMB survey recently on 96 pension funds – and we could only find the figures to 21 of them – found that there was a £2 billion deficit in these funds that are linked to private equity.

"There are 70-odd more that we cannot get access to and they're supposed to be giving good returns to these pension funds," he said.

Mr Maloney also says the ten-per-cent tax break enjoyed on capital gains is unfair on listed companies in the UK, claiming: "They [private equity groups] now pay their executives by way of a share in the company, and that is not treated as income, it's treated as capital gains and attracts the ten per cent tax threshold."

However, Labour peer Lord Hollick, a senior partner at KKR, says the perception of private equity groups stripping firms of their assets was an "inaccurate caricature".

And Permira managing partner Damon Buffini has insisted that private equity groups had contributed to the "good, strong, competitive" business model that was in the "best interests of everybody, in particular the employees".

"In a global economy there is no job security unless the business is profitable and sustainable, and that's what we're doing," he added to Radio Five Live's Wake Up to Money.

Speaking to the Today programme, Sir Ronald Cohen, regarded as the founder of the UK venture capital industry, admits it would be "perfectly reasonable" to look at the taxation issue.

"The key is to maintain incentives for entrepreneurship and for risk taking by venture capitalists and private equity investors as well," Sir Ronald argued.

"People don't take risk if they have no financial incentive to do so. We've lived through those years, I hope we never go back to them."

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