Pre-budget report could shake the City
Updated on 09 December 2009
Alistair Darling is due to announce the pre-budget report later today which is expected to focus on taxing banker bonuses as the chancellor aims to cut the budget deficit in half.
A one-off punitive super-tax on of more than 50 per cent on bonuses of bankers is expected to be at the centre of the report.
The government intends the tax to act as a clear message to the high earners of the City, but middle Britain could escape unscathed. The report of projected savings will set a political battleground in the run-up to the general election next year.
Darling has warned that better-off earners would have to pay more towards the cost of the economic recovery, saying "we would expect the broadest shoulders to bear the greatest burden".
Central to this is thought to be a windfall tax on bankers' bonuses, either in the form of a super-tax on bankers who receive payouts above a certain level, or increased national insurance charges for banks that pay big bonuses.
The pre-budget report will outline plans to cut the budget deficit in half by 2014. But critics have warned that a tax on bonuses will not alone raise enough to cut the estimated budget deficit of £180bn.
David Kilshaw, tax partner at KPMG, said: "The thing about the bankers' bonuses is that it's not actually going to raise that much money.
"While it might attract headlines, in wider tax terms it's not going to help his tax ambitions."
Instead Kilshaw said he expects Darling to turn to one of his big three earners, namely income tax, national insurance or VAT.
He thinks the most likely measure that will be introduced by the chancellor is a freezing in the thresholds at which at which the basic and higher rates of income tax kick in.
Darling is expected to press ahead with moves to introduce a new 50 per cent income tax band for those earning more than £150,000 from April next year, as well as scrapping personal allowances for people earning above £100,000.
He is also expected to announce plans to delay raising the threshold at which inheritance tax kicks in.
Other announcements could also include an increase in the rate at which Capital Gains Tax is paid, from its current level of just 18 per cent to 25 per cent or higher.
