On December 9th, Alastair Darling, Chancellor of the Exchequer, gave the 2009 Pre-Budget Report (PBR), an economical forecast required to be delivered at the end of each year by the HM Treasury to the the country’s Parliament. This year, cutting the country’s budget deficit was the key priority, clearly indicated by the Chancellor and by debates raised by the PBR.
Reduction of Government spending in select non-priority areas, and raising taxes on middle and high-income earners are the financial engines which stand behind the proposed plans of economic recovery. The most controversial and widely discussed measures revealed in the PBR are a tax on bonuses, and a rise in National Insurance Contribution (NIC) payments.
Effective from December 9th, any bonus scheme in the banking industry paying in excess of £25,000 to bank employees will yield a new corporate tax of 50 percent. The PBR makes accented mention that the new tax will be charged directly to the employer, and strict anti-avoidance measures will be implemented. In addition, the bonus payment will be subject to the personal income tax rate paid by the employee in accordance with their highest rate, reaching 50 percent. Effectively, accumulated net tax payment on bonuses could reach 100 percent.
Also, from April 2011 NIC payments paid by employers, employees and self-employed will increase by a half percent. Although, this is offset by an increased earning threshold, protecting those earning below £20,000 from any payment requirements.
Alastair Darling, emphasizing that keeping the current levels of budget spending on health, education and law enforcement is an essential soci-economic requirement, said, “…I am determined we will protect the improvements in these front-line services on which millions rely”.
Photo by HM Treasury
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