London Mayor: UK Tax Proposals Need Urgent Rethink

by Robert Lee, Tax-News.com, London

12 January 2010

The Mayor of London, Boris Johnson, has called on the Treasury Select Committee to urgently review the government’s plans for a new tax on bankers’ bonuses, as well as its other proposed tax and regulatory changes, before the general election.

Whilst backing measures to prevent banks from paying out non-performance based bonuses, Johnson has said that “hasty, unilateral measures, which undermine London's competitiveness,” proposed by the government, “are not the answer.”

A statement from Johnson urged that they would “have a disproportionate effect on London and its ability to continue functioning as the engine of growth and prosperity for the whole country, and will seriously harm its coveted position as a leading global financial center.” Other measures, that will affect London’s competitiveness, according to Johnson, include the introduction of the 50% income tax rate, the curbing of tax relief on pensions for higher earners, and the barrage of EU financial services regulations.

Johnson and his advisors have been in discussions with several leading financial institutions that are considering or already planning to move staff and operations overseas. Should they proceed, City Hall estimates that up to 9,000 staff, many highly skilled, could leave the UK, potentially costing the Exchequer over GBP1.2bn in lost tax and national insurance contributions annually. This is in stark contrast to the GBP550m the government predicts it will raise in total from the one-off bankers bonus tax, Johnson observed.

“Even if significantly more tax were raised than this estimate, this short-term, one-off benefit to the Exchequer would soon be outweighed by the cumulative annual tax losses from bankers leaving our shores," Johnson said.

The Mayor has written to John McFall, Chair of the Treasury Select Committee, following publication of its response to the government’s pre budget report, which set out the new tax – the "bank payroll tax." Johnson called on the Committee to broaden the scope of its review to assess the impact of all the government’s proposed tax and regulatory changes, such as the 50% top tax rate, which primarily affect London and the UK’s vital financial sector.

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