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EDITOR’S TAKE: Big taxes will come to the UK

Immediate prospects for a 90% tax on bonuses at many US banks may be receding thanks to the intervention of Obama, but the calls for the punitive taxation of high earners have barely begun in the UK.

Last month, the UK budget deficit was 9bn, eight times its level of February 2008. The IMF is predicting that the UK’s budget deficit will hit 11% in 2009 , higher than anywhere else in the Western world.

In an attempt to close the gap, the UK government has already committed itself to hiking taxes in 2011. In what will be the first increase in income tax since the 1970s, personal income above 150k will thereafter be taxed at 45%. National insurance contributions for both employees and employers will also rise by 0.5%.

It’s questionable whether this will be sufficient. Carl Emmerson, deputy director of the Institute for Fiscal Studies, says the UK government plans to raise 5bn a year from the increases in National Insurance and 1.6bn a year from the increases in higher rate tax. The IMF is predicting an annual budget deficit in excess of 150bn.

Taxation isn’t the only route out. The Bank of England can monetize some of the debt through quantitative easing; the discrepancy will also narrow if the economy recovers and the tax take rises. But if the downturn lasts longer than expected and the tax take recovers more slowly (past losses mean Merrill may not pay UK corporation tax for 60 years), further increases in income tax are a certainty.

City workers will be the inevitable target. A new political consensus is emerging around the need to extract cash from the ‘greedy bankers’ perceived as responsible for the crisis. The Conservatives are already proposing to follow Labour and increase the top rate of tax to 45%;

How high might income taxes go in the long term? Emmerson points out that dramatic increases in the higher rate are self-defeating as they tend to encourage early retirement and emigration. But as the House of Representatives has shown, populism is not necessarily rational. 40% may soon come to look very generous indeed.

Comments (19)

  1. Thank God I pay next to no tax then.

    1. If possible in your job, class yourself as an ‘independent consultant’ rather than an employee, that way you can expense EVERYTHING such as your mortgage against your income.

    2. Go to Welbeck Wealth to pay much, much less tax.

  2. Thanks for those heartwarming words, Henry. If it weren’t for people of your ilk, twisting every which way possible to avoid paying their fair share for the infrastructure of this country that pays for hospitals, roads and schools, what would the rest of us do? We must bow down to your cunning and clever ways.

  3. thanks Henry – v useful – i shall be checking out that website ASAP.

    Anaon – you communist

  4. Is Henry trying to provide useful info for once? Or is he helping out his pals?

  5. Henry, how can you be both a trader and on a consultancy contract?

    Quizzical Quant Reply
  6. henry is not a trader he is a fascillity manager with loadsa fantasy.

  7. Quant, indeed I’m an ’employee’ at the bank, however I was saying for other people if you can be a ‘consultant’ – particularly in Technology, Risk Management etc this is common. Also everyone should have their own ‘business’ – costs 60 to set up a limited company, then you can expense your accommodation, meals, car etc against it.

    Anon, look at the phenomenal wastage of UK tax money. I refuse to pay the full whack for a cushy welfare state, where people actually prefer to be baby machines than get a career because they know they get a free flat, the number of public sector morons on 6 figure salaries, schools I’ve never used nor will my children.. if tax money efficiently went to “schools, hospitals and infrastructure” then we’d all pay 10% flat tax comfortably. Unfortunately, the wasted money and where it goes is beyond horrific. Screw that.

  8. Henry you buffoon..you absolutel idiot..you obviously know nothing…It is illegal to expense any more than a modicium of subsistency (food) a small portion of accomodation (ie work space) and dont even try and go there with a car( a reasonable amount of petrol/parking is allowed but any deductions made for car usage can be hit quite stringently should you not be able to prove that your usage is work related..the allowances from the Taxman are very clear to see..or better still just phone them and ask
    You are a fool

  9. “henry you buffoon” LMAO

    Henry’s been called many things by many people – but was “buffoon” really the best you could think of “thursday2” (?)

  10. “which way possible to avoid paying their fair share for the infrastructure of this country that pays for hospitals, roads and schools”

    How exactly is 40% tax Henry’s “fair share”, when I presume he doesn’t use hospitals, roads and schools anywhere near as much as working class people paying 20% tax?? Doesn’t sound fair to me.

    Progressive tax rates.. its like someone working really, really hard at school to get their 1st class degree, then have to give 10% of their marks to a lazy person who got a 2.2/3rd, for ‘fairness’.

  11. Thursday2, a car is fine if its a “marketing expense”. There are some “businesses” you can run where every facet of your lifestyle such as every time you take a girl on a date, to holidays, can be legitimately expensed against your income.

    Anyway, say what you want, I pay virtually sod all tax on a nice 6 figure income.

  12. is everyone pretending to be Henry today?

  13. Let’s hope you never need to go to A&E, Henry….

  14. Henry is an MP pays no tax , puts it all on exes, oink oink

  15. I think that the revenue are onto this one: http://www.hmrc.gov.uk/ir35/

    Once HMRC have seen through your scam and “deem” you an employee (which you actually are) they charge you for all the unpaid tax + interest on top.

    Henry doesn’t know what he’s talking about Reply
  16. Very insightful article. As a Fund manager, I figured this one out two years ago. I left UK and they will not see another pound from me. Nonetheless, I believe there will be nowhere to hide soon enough. Listen to the Beatles song…they were always ahead of there time and wiser than any banker.

  17. Which Beatles song do you suggest? Penny Lane? You pretentious prat

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