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The new ‘supertax’ on bank bonuses over £25,000 has been poorly received by experts, who have questioned its effectiveness and stressed the downside for the UK’s appeal as a business centre.
The tax policy director of the Chartered Institute of Taxation, John Whiting, claimed the one-off 50% levy was ‘like some of the wartime strictures on travelling: the chancellor wants the banks to think hard before they pay a bonus’.
‘It does sound more of a controlling measure than a tax-raising one,’ said Mr Whiting. ‘We need to see the detail, but the obvious thought people will have is that it may be possible to sidestep the measure by waiting a year.
‘The Treasury will face some major practical issues in framing this law. Defining a bonus will need a lot of care, as will defining a bank – or is this a measure that could impact all businesses? That may be necessary to manage possible challenges under human rights or anti-discrimination laws.’
Michael Wistow, head of tax at Berwin Leighton Paisner, predicted that ‘people in the City will react very badly to this.
‘It is another example of a politically motivated tax change that is unlikely to raise significant revenue. It will make the UK less attractive and put it at a significant competitive disadvantage,’ he said.
‘Coupled with the 50% income tax rate, non-dom changes and a further tax increase through National Insurance payments, many of the high-earners who have contributed so much to the UK’s prosperity will now be looking very seriously at leaving the country.’
Alvarez & Marsal MD Ian Fleming echoed Mr Wistow's sentiment, by saying, the 'supertax' would 'surely add to the exodus from the UK of mobile executives... and drive away people and capital essential for growth. It is interesting to note that France and Germany, once very noisy about this issue, have not followed suit.'
The downside of the tax was also highlighted by Rod Roman, financial services partner at Ernst & Young, who remarked: ‘Windfall taxes of this nature are dangerous because they can become an expectation of businesses.
‘Those investing in the UK will have to second-guess the actions of future governments, and in this situation low tax rates will no longer attract companies to the UK.
‘It is unclear how the Government's plans to tax the bonus pools of banks will work in practice. These types of emergency measures can introduce uncertainty and complexity in the tax regime. For a chancellor who has prided himself on simplicity, this was clearly a difficult decision,’ said Mr Roman.
The Revenue's press release states £25,000 not £250,000:
The typo has now been corrected.