The private equity barons breathe a sigh of relief when Reeves is forced to give up his bonuses.

The Chancellor was yesterday forced to soften a tax raid on private equity bonuses amid fears it would spark a mass exodus from the UK.

Rachel Reeves increased the tax on carried interest (the portion of investment returns shared by private equity executives) from 28 percent to 32 percent starting in April next year, and to 34 percent by 2026.

The announcement came as a “relief” to the procurement industry which feared the bonus, which has helped executives amass huge personal fortunes, would face a levy of up to 45 per cent.

But the Chancellor also said there will be reforms to make carried interest rules “simpler, fairer and better targeted”, casting doubt on the future of favorable tax treatment.

Private equity groups launched an urgent lobbying campaign against Reeves ahead of the budget, amid fears he was planning to align the tax with the top income tax bracket.

They warned this would cause multi-billion dollar takeover bosses to leave the UK for countries with a more favorable tax regime, such as Italy, Greece and Dubai.

That would have resulted in lower tax revenue for the Government and reduced investment in the UK, they said.

Michael Moore, chief executive of the British Private Equity and Venture Capital Association, said: “It is welcome that the Government has listened to our arguments about the value of the private equity industry and how important this sector is to the economy.

“Our industry will work with the Government as it consults on the implementation of these changes and ensures any risk of reduced investment is mitigated.”

Nicolas Moura, an analyst at private equity data platform Pitchbook, said it was a “good compromise given the talk of taxing accrued interest as income at a higher rate of 45 percent.”

He added: “We don’t think this is going to turn the tide or drive an exodus of private capital from the UK.” The people who earn the most in these companies are usually already located in tax-efficient locations.’

Nimish Shah, of advisory firm Blick Rothenberg, said: “The private equity industry will be relieved by an increase of just 4 per cent in the accrual rate.”

The Reeves adjustment – ​​which puts tax on carried interest in the UK above that of Germany, Italy and Spain – will raise just £100m by 2029-2030, according to the Office for Budget Responsibility (OBR).

The estimate assumes that around 12 per cent of interest recipients – which would total around 360 people – are at “high risk” of fleeing the UK in the next five years due to tax changes.