Private equity firms are braced for a shake-up ahead of the Autumn Budget as Labour targets buyout barons' bonuses.

Chancellor Rachel Reeves is expected to announce that executives will have to pay a higher rate of tax on their earnings.

Labour's consultation on how carried interest – the portion of investment returns shared by fund managers – will be taxed closed yesterday.

Sir Keir Starmer has pledged to 'close the private equity loophole' that taxes carried interest at 28 per cent rather than the 45 per cent higher band of income tax. 

It comes as Labour scrambles to fill a so-called £22billion 'black hole' in the UK's finances.

Raising the tax on carried interest could bring in an extra £565million a year, the Government has said. 

But City experts warned that hiking the tax could discourage investment in the UK and push private equity bosses to relocate to places such as Milan.

A change could have a ripple effect on banks, law firms and consultants servicing the private equity industry in London.

The sector has been lobbying the Government over the issue. Ultra-wealthy Britons have also been spooked by potential raises to capital gains and inheritance levies in the Budget on October 30.

Mike Hinchliffe, head of private equity at City law business Addleshaw Goddard, said: 'The risk of talent flight is very real – we are seeing and hearing evidence of UK private equity fund managers giving serious consideration to other jurisdictions.'