Britain’s very modest surtax revenues

By Felix Salmon
December 10, 2009
Andrew Clavell notes something very interesting about the amount of money the UK Treasury expects to raise from its bonus tax:

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Andrew Clavell notes something very interesting about the amount of money the UK Treasury expects to raise from its bonus tax:

Given £6bn of bonuses originally expected to be paid to UK based bank employees, HM Treasury’s anticipation of proceeds from the 50% levy of only £550m says a lot about what the government supposes the banks’ reactions will be.

No, the reaction isn’t that they’ll suddenly decide to slash bonuses from £6 billion to £1.1 billion. Instead, they’ll find loopholes: most likely just deferring the payment of bonuses until after the supertax expires. At that point, the top tax bracket rises to 50% from 40%, so the government will still get a bit more money. But not nearly as much as the headline rate on the supertax implies.

Even so, the £550 million estimate does seem incredibly small: it implies total bonus pools this bonus season of just £1.1 billion. Can that really be the case?


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The original news article says this:
“Banks will be charged a 50 percent tax rate on bonuses they pay their staff above 25,000 pounds starting today until April, a powerful disincentive for big payouts this Christmas.”

So one plausible explanation is that the bulk of all bonuses are under 25,000 pounds.

Posted by Beer_numbers | Report as abusive

Beer’s right. The windfall tax only covers a part of the bonus pool.

The government’s estimate assumes that banks will reduce their bonuses. It is also a net figure – it takes into account that the government will collect less income tax because the bankers will receive lower bonuses.

So if you assume the bonus pool covered by the tax is £3 billion, then £1 billion of that goes to the government. But because bankers aren’t paying tax on that £1bn, the government also “loses” £400m. Which gives you a net figure of $600m – close to the government’s estimate.

Deferring bonuses to April, when the tax expires, would risk classed as avoidance by the authorities. And the government’s already said it will extend the tax if it thinks banks are abusing it.

Posted by petertl | Report as abusive

There’s specific provision to catch arrangements which are in effect a deferral of bonus payments until after the expiry of the tax. That’s not to say that it won’t be possible (this is a good tax to keep financial planners busy, I’m sure…) but the most blatant dodge of just deferring has been anticipated.

Posted by Ed2010 | Report as abusive

Is it really that hard to provide the bonuses in creative ways?

Posted by Uncle_Billy | Report as abusive