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Tax hikes 'will cause City exodus'
Jonathan Prynn, Consumer Affairs Editor25 Nov 2008
SENIOR City figures today warned of a new "brain drain" that will threaten London's status as the world's leading international financial centre.
They said Alistair Darling's decision to focus tax-raising measures on high earners will push many hedge funds and other firms into abandoning London for alternative bases such as Geneva.
Yesterday the Chancellor announced a new 45 per cent tax band for earnings over £150,000 from April 2011, and also said tax allowances will be reduced for workers on more than £100,000 from April 2010. Jonathan Ivinson, head of tax at law firm Hogan & Hartson, said: "The proposal to raise taxes in the future for high earners to 45 per cent is another stake in the heart of London's once pre-eminent financial services industry.
"We have already seen many successful hedge funds calling time on the UK for Switzerland. This change will only make such emigration more likely. And the exodus may not be confined to hedge funds. It also raises the prospect of a Seventies-style "brain drain" with talented, highly remunerated individuals across industry sectors heading for the exit."
The combination of the higher tax band and reduced allowances will create a bizarre tax anomaly that gives people earning between £100,000 and £106,500 or between £140,000 and £146,500 a marginal tax rate of 50 per cent. This will be one of the highest in the developed world behind only Denmark and Sweden and equal with Japan, according to figures from accountants KPMG.
Andrew Tailby-Faulkes, head of private clients at consultants Ernst & Young, said senior bankers and other City high earners would face swingeing increases in their tax bills. By 2011 people earning £300,000 - even in the current depressed climate not an outlandish figure in the City - will pay an extra £12,000 in tax.
If they are also foreigners taking advantage of Britain's "non-dom" rules their extra annual bill could be as much as £42,000, as Mr Darling has already announced a £30,000-a-year levy for long-term non-doms. "That's not a good sell for the City," said Mr Tailby-Faulkes.
He added: "Switzerland has already capitalised very swiftly and very efficiently on the non-dom changes and I would expect other offshore centres to pick up very quickly on these latest changes."
In his pre-Budget report Mr Darling said that his proposals would affect only the top two per cent of taxpayers, or around 600,000 British workers earning at least £100,000. It is estimated that up to half of them are based in London and the South East.
Colin Stanbridge, chief executive of the London Chamber of Commerce and Industry, said: "Adding a new tax band will disproportionately affect London because we have by far the highest earners in the UK. By increasing the tax burden for successful individuals the Government risks jeopardising the capital's battle to attract the world's top business people. In the longer term, this could hamper the UK economic recovery."
One analysis calculated that the net increase in tax revenues for the Treasury could be negligible because the new band will drive many highly paid workers overseas. Doug McWilliams, chief executive of think-tank the CEBR, said: "It has probably more to do with punishing errant bankers who got us into this mess in the first place than seriously raising extra revenue."
One former Lord Mayor of London said it was up to senior London bankers to act as ambassadors for the City and sell its long-term strengths overseas.
Sir Michael Savory, who was Lord Mayor in 2005, said: "When City bankers go abroad and promote the City as a financial centre it is falling on deaf ears at the moment. We have to say, 'We will see this out and we have got the experience and the expertise to get us out of this'."
Reader views (20)
I'd be happy to do these people's jobs for what they get paid less the extra tax, in fact I'd do them for a good deal less. Not meaning to boast, but I suspect I'm as clever as they are (I have top academic qualifications, but maybe I'm not posh enough to work in the City). And I could certainly see the house price crash and resulting economic chaos coming when it seems a lot of people paid handsomely to do economics and future planning made business plans which didn't factor it in.
Seems obvious to me - the economy's in a mess, so those lucky still to be in jobs have to pay more tax to keep state services ticking over. And obviously, those who are most able to pay should contribute the most.
What's the matter with these people? They were here when the country was doing well, but they run away when things get tough and more demands are made on its citizens. Our forefathers died in wars for this country, while these people run away because they are asked to give a few of their many thousands to support it in an hour of need.
If they are Brits they are traitors, if they are not Brits, well, let them go and give the jobs to people who love this country and will serve it and its industry in good times and bad.
- Matthew, Eltham, 27/11/2008 08:35
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So, you think that taxing even more the super rich will help the nation?
I think that lot of them they already find a good agreement with Swiss and other countries, so they will spend their money somewhere else, means lot of peoples will lose their job because income is missing in restaurants, shops etc etc, no founds for private reserch, charity, investment, new jobs etc etc.
Im not rich at all, but i can understand that where those peoples go, their money goes too.
I don't think is a good idea for the economy.
- Worker, London, 26/11/2008 09:04
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I am astonished anyone could be silly enough to invoke Mrs Thatcher as a pillar of wisdom. It is her policies combined with incompetent bankers and 'City figures' that have got us into this totally predictable mess.
Since they have made a mess so far let them go elsewhere and wreak their havoc elsewhere. It will probably help improve traffic congestion in the short term. Just make sure we tax any funds that they attempt to take with them.
- Michael Mclaughlin, leicester uk, 25/11/2008 20:32
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Great!
- Jane, London, 25/11/2008 17:12
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1970's all over again. Then it was the brain drain now its the white flight. However, Labour managed to destroy the working environment then and now. Mrs T (god bless her) managed to restore confidence with over sea's big time investors by denouncing the 1947 exchange control act, which managed to calm nerves and allowed the free flow of money throughout the U.K. Now look how Brown has once again destroyed confidence in the money/markets by going after off shore accounts and by smashing open safe deposit boxes in London that had nothing to do with him but his politics of envy that is now out of control.
- Mike,, London, 25/11/2008 16:31
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Labour are not so silly on this one. As most commentators say, no one will leave over this. So, for most people, hearing the 'super-rich' will be taxed is a vote winner - simple politics - tax the few who wont vote for you anyway and tell those who will. Don't fall into the trap of thinking these evil incompetent communists are finished yet.
- T., London, 25/11/2008 15:57
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Isn't it these "talented people" who dropped the rest of us in it?
- Mike Melbourne, Bedford England, 25/11/2008 14:51
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Given Gordon and his mates are always banging on about fairness, why don't they stop gold-plated pensions at 60 for the public sector? That would make a far bigger impact on public spending/borrowing and the budget deficit than any other measure announced so far.
- Anne, London, London, England, 25/11/2008 14:28
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There's no way this tax rise could cause an exodus. Raising higher rate tax from 40% to 45% for anyone earning £150,000+ means that someone earning £200,000 would pay an extra £2,500 per year, which is far far less than the cost of moving your life abroad.
With the pound at a 15-year low and house prices falling, it's easy for foreign citizens to buy into Britain, but not so easy to leave.
- Liz, London, 25/11/2008 13:47
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Tonyb makes a very good point!
Special interest groups always like to get the brain drain argument out there, except:
a/ Nobody is listening to the cries of woe from people who have been laughing their heads off for the last 10 years dreaming up more and more irresponsible derivatives to plump their bonuses
b/ There is nothing to suggest the tories will reverse it - in fact if the tories laissez fair economic approach is allowed to play out by 2011 nobody will be earning 150k so it wont matter
- Keith, Acton, 25/11/2008 13:14
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I will be leaving the City next year due to the high public transport fare rises. There are also a lot more people I know that are thinking along the same lines.
- Grim Reaper, Hell, 25/11/2008 13:13
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Much of the world demands that the financial sector stops ruining everyone else's lives. Therefore the political pressure to reign in tax havens will be strong and long-term.
Pressure for minimum tax levels world-wide will also grow; otherwise rogue countries like Switzerland will destablise whatever recovery might occur.
- Jon, London, 25/11/2008 12:51
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Our current parlous state would suggest a 'drain' of some of these people might not be such a bad thing after all. But in all seriousness, this is such a weary load of nonsense. The sums concerned are scarcely sufficient to force large numbers to uproot, and, in the current global situation, the number of destinations (and jobs anywhere) is rapidly shrinking.
- Tim, London, London, UK, 25/11/2008 12:46
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If these are the same brains who helped create the mess in the first place, the drain's the best place for them.
- Philip Murphy, Brussels, Belgium, 25/11/2008 12:36
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It's only money and for those lucky enough to find themselves in this tax bracket, the hike represents relatively small change, which if their accountant is good enough, will be more than adequately compensated for. I suspect something far more drastic would be needed to force these people abroad.
- Matthew, london, 25/11/2008 12:30
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They won't leave - the smart ones know that however much life is more civilised in Geneva or Paris, when the market starts to revive the only place to make really serious money will still be London. The other cities simply aren't sophisticated enough and despite technology etc you have to be where the deals are, which is London as long as NY is hobbled by Sarbanes-Oxley. They are driven by money, and few will be content to sit in Geneva knowing they could be earning twice as much here, however nice the view.
- Tony, London, 25/11/2008 11:01
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Oh come off it!This is such an old and fallacious argument."People earning £300,000-even in the current depressed climate not an outlandish figure in the city-will pay an extra £12,000 in tax" This is 4% and it is believed that this will make thousands of people leave the country? I think they will just about be able to rub by.
- Patrick Cameron, France, 25/11/2008 10:31
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Given that this tax change will not happen until 2011, all these gloom-mongers obviously think one of two things: (a) Labour will be re-elected; or (b) the Conservatives will be elected but won't change the rate.
- Tonyb, Melbourne, Australia, 25/11/2008 10:30
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There will be no brain drain - there are no spare jobs in any of the major economies. Remember these people will be benefiting from the current cuts. It is only right that the top earners, many of whom have played a part in the downfall of our economy, help cover the cost of the bailouts rather than the low earning population who have suffered considerably at the hands of some of those earning 6 figure salaries. In addition it should also be remembered that under New Labour the Gini co-efficient (which measures the differential between rich and poor) has actually grown (as it did under Thatcher) so it is time to reduce the inequality
- Andy, London, 25/11/2008 10:28
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We need these 'talented' people like we need a hole in the head. Good ridance.
- David, London, 25/11/2008 10:23
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