The private equity industry is driving the growth of UK financial services firms according to a new study published by the British Venture Capital Association (BVCA).

Private equity firms generated around £5.4bn in fees for bankers, lawyers and other professional services firms in 2006, said the industry body. The figure accounted for around 12 per cent of the total turnover of the UK financial services industry in that year.

The biggest beneficiaries were corporate finance and accounting firms, who generated over £1.7bn in fees. Banks and law firms followed close behind, raking in £1.24bn and £1.2bn respectively.

The BVCA said that including the financial, professional and business services sectors, close to 15,400 people across more than 1,500 firms are engaged either directly or indirectly in private equity related activities.

The report is an attempt by the industry to improve its public image in the wake of a damaging year which saw private equity bosses accused by the UK Treasury Select Committee of using tax loopholes to bolster profits.

BVCA chief executive Simon Walker said he wanted the report to highlight "private equity's contribution to the wider UK economy."

He claimed the private equity industry paid £35bn in taxes last year. "Enough to pay for all the nurses, ambulance staff and police officers in the country."

However, Walker warned that uncertainty over changes to capital gains tax, and moves such as last week's amendments to the resident and domicile tax rules, could make Britain a less attractive place for private equity firms to be based and do business.

That point was picked up by David Childs, managing partner of Clifford Chance, who said: "We should not score an own goal by taking action that drives the private equity industry away from London."

He said Switzerland in particular could attract business away from the UK if tax changes hit private equity firms.

Some aspects of the private equity industry, most notably fund administration, are already well established in the offshore markets.

According to statistics released by Guernsey Finance, private equity assets under administration and management in Guernsey grew by 40 per cent in the first nine months of last year to hit £28bn by September 2007.

The vast chunk of Guernsey's business is derived from the UK. Terra Firma recently set up an office on the island, while the US firm Kohlberg Kravis Roberts & Co has established fund structures in Guernsey.

Peter Niven, chief executive of Guernsey Finance, said: "We are well established as a lead player on the private equity stage."

The BVCA study revealed that private equity firms paid £84m in fees for fund administration services carried out in the UK.