Now that our economy is well and truly fucked, Chancellor of the Exchequer Alister Darling has decided to ramp up our national insurance by 0.5% in 2011 in addition to ongoing plans for a further 0.5% increase.
He is also proposing a 50% tax on bankers bonuses that seems to be more a publicity stunt than an action that will have any impact at all (I thought he’d already imposed such a tax on anyone that earned more than £100k anyway). He forecasts that this will raise £550million per year: by the time I’ve typed this I think the state deficit will have gone up by more than that and banks are already changing the way they pay bonuses (share options, salary increases) to avoid this tax.
The income tax bands will remain the same which means as people receive pay rises there will be another 70,000 higher rate taxpayers. Public sector workers of course, as many private sector employees I know are having 10-20% pay cuts imposed on them (all good if you’re an MP in the running for a £40,000 pay rise, though).
He’s announced “help” for young unemployed but in true Labour style fails to provide any real measures that will make any difference coupled with a reannouncement of old money.
Taxes on bingo will go down and the state pension is to increase by 2.5% as of next year.
So there’s your pre-budget report. It has to be said that Labour has bottled it on the national insurance raise and I find it typical of Labour to put it on the back burner because there’s an election coming up. Remember, Gordon Brown was the founder of the budget that announces deferred tax increases so that when they come into effect everyone’s forgotten about them and the public fury has subsided. Taxation via the back door is, after all, Labour’s speciality.
I believe the short term measures put in by Labour such as the reduction in VAT, the car scrappage scheme and the stamp duty waiver (did they do anything else?) have lulled people into believing that the recovery is in motion. But what will we all think when VAT goes back up by 2.5% in a few weeks, we get 0.5-1% on our national insurance, the car scheme expires and house prices are suddenly pumped up by thousands.
Yep, that’s right. We roll back to how we were about, oh, a year or so ago except a lot more people are unemployed, we have even less money and everything’s more expensive. It could well create the second wave of recession that has been talked about by pundits.
Token gestures like this bankers bonus tax are a joke: it’s a typical appeasement of the grassroots Labour footsoldier but this could be a move that hurts the UK far more than any other. Banks create a lot of tax for the government and after all, the financial services industry is – or was – the only world class industry left in the UK. After the banking bailout a good chunk of these investment bankers now work for UK Plc.
But whilst there are three banks that have been bailed out there are many other banks such as HSBC, UBS and Goldman Sachs that have received no bailout money from the Government. What happens with these? Will they have their bonuses hammered? Will they do their business abroad with lots of high earning, high taxpaying employees leaving the UK?
Remember, investment bankers and their ilk don’t just pay lots of tax on their earnings, they buy big expensive houses and pay lots of stamp duty, they buy flashy toys and pay lots of tax to buy and play with them and they have a generally exuberant lifestyle. That’s why we want them here.
Take Simon Cowell. He paid almost £60million in income tax the year before last: assuming the average staff nurse is on £25,000, this pays for 2400 of them. If he lived somewhere else this money wouldn’t be going into our tax coffers.
The extreme outcome here if all the bankers feel persecuted and realise that in fact if they move to the USA they can double their bonus is the scaling down of the UK banking sector: in ten years will the only UK based banks be Lloyds Banking Group, Northern Rock and RBS? If the conditions everywhere else are so much better, will UK banks be able to hold on to the very staff that multiply their capital?