Alliance Boots is being bought by private equity

The comments come as key figures from five of the biggest buy-out firms prepare to face a Treasury Select Committee looking into private equity.

Currently partners pay just 10% tax on gains made on companies they invest in.

However, the Observer said that only 40 of the top 200 executives would be hit by a change to the tax regime.

Most of the other private equity partners based in the UK are British, but not domiciled for tax purposes in Britain.

'Increase criticism'

Commentators expect the Treasury Select Committee to call on the government to ensure that private equity firms pay their fair share of taxes.

Wednesday's eagerly awaited hearing will see key figures from Permira, Blackstone and 3i among those giving evidence.

They are expected to defend the role of private equity, which the industry says improves the performance of the companies it buys and is good for the economy.

But the Sunday Telegraph reports industry sources as saying that a change to the taxation system is "inevitable" and would be accepted.

The debate about private equity...should be about whether its impact on the British economy is good or bad, in the widest sense Robert Peston BBC Business Editor Read Robert's thoughts on private equity and tax Quick guide: Private equity

Weak showing

Private equity funds have come in for increased criticism in recent years.

Snapping up a growing number of UK companies, such as pharmacy group Alliance Boots, they have been accused of using too much debt to finance their deals and cutting jobs at the firms they buy.

Private equity executives pay taxes on their earnings and bonuses, but a large part of their earnings comes from carried interest, or the 20% slice of profits they can claim once they have paid back their investors.

This money is classed as a capital gain, and as such is subject to a tapering tax level of 10%. Critics say it should be charged at a normal tax rate.

Some private equity figures have admitted that the low tax rates are unfair, including head of SVG, Nick Ferguson, who admitted that some of those running and investing in private equity were paying tax at a lower level than cleaners.

However, supporters of the industry say that increasing the tax would make the UK less attractive to investors.

Last week, the head of the British Private Equity and Venture Capital Association which represents the UK's private equity industry, Peter Linthwaite, unexpectedly resigned after he was widely criticised for a weak showing before the committee.