This year the private equity industry has been delivering a clear message to governments around the world: far from being a cause of the current crisis, it is an important part of the solution. In the UK at least, that message has not fallen on deaf ears.

Lord Mandelson, Secretary of State for Business, Enterprise and Regulatory Reform (and the speaker at a British ­Private Equity and Venture Capital ­Association dinner last week) has made it clear that the Government recognises the importance of private equity.

As it looks for ways to stimulate the economy, to support viable businesses through short-term ­liquidity problems and to prepare them for the eventual recovery, Westminster knows that private equity has a critical role to play.

Mandelson announced in January, for example, that he would establish a Capital for Enterprise Fund to help small and medium-sized businesses that were ­struggling to obtain bank debt, and that professional private equity fund managers would be recruited. He has since said that the Government is studying ­Confederation of British Industry-backed proposals for a new Industrial and ­Commercial Finance Corporation (ICFC), modelled on the one established in 1945 as a partnership between the Bank of England and major banks to assist the UK’s post-war recovery – the forerunner to 3i.

It is obvious, to the Government and to many others, that businesses will need equity capital to replace the debt they can no longer get and to shield them from ­further risk. It is also clear that private equity houses have the capital and the skills to identify good businesses and to steer and sustain them through difficult times. Even though the industry is now facing the same commercial challenges as every other business, the private equity model of alignment of interest and active ownership offers real attractions in the current environment.

It is therefore ironic that there are real threats to private equity emerging in ­Brussels. Political considerations are riding roughshod over rational argument, and there is a serious danger that private equity houses will be left with inappropriate ­regulation that could damage their ability to deploy capital in the future.

Despite a 200-page dossier delivered by the private equity industry to the European Commission at the end of last month, and a hearing organised by the Commission that rehearsed the merits of private equity, affirming the absence of any systemic risk from its business model, it is now clear that new draft regulations will be published in Brussels next month. Those regulations are likely to include a system of registration for funds, high-level disclosure and ­transparency rules, a unified industry code, a supervisory regime and some restrictions on leverage. While the industry is working hard to shape those rules, there are ­powerful political interests at work, and some – including the influential Poul Nyrup Rasmussen, former Danish prime minister and leader of the Party of European Socialists – have made it clear that they will not be happy with anything but the most potent curbs on private equity.

Private equity is already regulated heavily in the UK, and recent moves towards self-regulation reflect a recognition that greater transparency and disclosure are both ­desirable and inevitable. The industry has volunteered to work with regulators to come up with new rules that meet their ­concerns, and there is still some hope that this will deliver a workable solution.

But the UK Government now needs to show its own hand. Having been ­supportive of the role that private equity has to play, both in its rhetoric and its actions, it should now use its political clout in Brussels to shape this debate and to put the case for good regulation rather than ill-informed knee-jerk reactions. Those may be politically expedient in the short term, but could be very damaging as we try to pull our economy out from recession.