Tuesday, 4 October 2011

Taxing Times

Over the last few years the public cry, largely driven by an uninformed press, has been for new higher levels of tax for companies and in particular for high earning individuals (in the UK at least). In theory this generates a lot more income to help the government reduce the deficit. It would also in theory bash the banker's bonus which seems to be to top priority for the mainstream media.

The problem with onerous tax levels is that it is anti business and talented / high earning employees will simply leave the country. They are a mobile workforce and typically work in financial jobs in London which could be replicated in other global financial sectors. I personally know several brokers and bankers who have already made the move - most seem to be heading to Zurich or Singapore. Interestingly they say one issue for the move is tax but another reason is the public sentiment over high earners at the moment. Even if their job was completely unrelated to the financial crisis they are still being branded with the same 'banker' label which is now considered a derogatory term. It's not only people that are moving - last year Wolseley, a large building company, took their HQ and £391m profit to Switzerland. The UK missed out on a £23m tax bill as a result.

The UK needs to remain pro business and encourage high earners to excel. The top5% already pay 25% of the UK's income tax. High earners should definitely pay more tax but anything beyond the current level would be counterproductive and the 50p bracket should be reversed soon before too much damage is done. There also needs to be a sentiment change - companies are generally speaking efficient and wouldn't pay big bonuses unless the person receiving that bonus was worth considerably more. There tax bills are already larger than most people's paychecks so just think of what can be done with the tax they generate.

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