The UK government risks damaging one of the country's biggest industries by creating uncertainty about its attitude to business and finance, speakers at a private equity conference said this week.
Maintaining London's status as the world's financial centre is crucial when the UK faces a possible economic slowdown and globalisation poses a greater threat of competition, they said.
Private equity has been at the centre of attempts to close tax loopholes for rich individuals and has drawn criticism from politicians and trade unions about the increasing power it wields in the British economy.
"The biggest concern is we have one world-leading industry left, which is financial services, and it's a very delicate animal. Playing with it appropriately is something which is central to the future of the UK," Alchemy Partners managing partner Jon Moulton told Reuters on the sidelines of private equity's annual Super Return gathering in Munich.
"Because our manufacturing industry is not going to get us out of any problems, our natural resources are pretty marginal, as is agriculture and tourism, if we want to end up with a balance of trade and a standard of living we have to make sure financial services are looked after pretty well," he said.
The financial services industry is a major part of the UK economy, employing more than one million people. Business services and finance account for around a quarter of Britain's economy, according to government statistics.
In London, one of the world's largest financial centres, more than 340,000 people are in jobs related to the financial sector, from accountants to bankers, according to the Centre for Economics and Business Research.
Private equity's trade body in the UK has said plans to impose a levy on wealthy foreigners who legally do not pay UK tax may prompt some members to move staff out of the country.
The consultation period on proposals to give non-domiciled individuals living in Britain the choice, after seven years, of paying £30,000 or falling under the UK tax system ends on Thursday.
The changes are likely to take effect from April 6 and are of particular concern to US nationals.
Simon Walker, chief executive officer of the British Private Equity and Venture Capital Association, said he had heard concern in New York that London was not as business-friendly as before.
"Is the welcome mat getting worn out? That's my worry," he told reporters at the conference.
He added that lack of public knowledge and hostility towards buyout firms had wider implications.
"You have to be aware of the consequences to the economy at large because of prejudice towards private equity," Mr Walker said.
"We are not going to see an exodus of private equity on the basis of non-dom changes," a partner at a major buyout firm, who declined to be named, told Reuters.
"But you have to be careful about the long-term image and impression created and make sure it doesn't convey hostility to the international business environment."
"If a major private equity house relocates it won't be anything to do with what the government has done so far. It will happen because of uncertainty," he said.
However, he stressed London held many other attractions for the industry, including good global flight connections.
European Venture Capitalist Association General Secretary Javier Echarri emphasised London's position as a centre of financial expertise, as well as pointing out the city's role was important for the rest of Europe.
"There is a cluster of specialised financial services in London. It is not about one piece of taxation or regulation but all the expertise that makes a difference. It's not just about London, but the competitiveness of Europe," he told reporters.
In a response to public outcry last year about the low taxation paid by private equity, the UK government has proposed reforming capital gains tax, although critics say the plans were watered down after lobbying by the business community.