Alistair Darling To Target High Earners

Alistair Darling (Telegraph) – HIGH EARNERS HAVE BEEN WARNED by Alistair Darling, the Chancellor, that they will be expected to “bear the greatest burden” of economic recovery in this week’s pre-Budget report.

Mr Darling is considering levying one-off windfall taxes on bank profits and a super-tax on bankers who receive bonuses above a certain level, and indicated that he expected the rich to pay more in tax.

Taxing profits at 10 per cent would bring in around £2 billion this year alone, but while both moves are said to be “on the table,” a final decision ahead of the pre-Budget Report has yet to be taken and the Chancellor has discussed the options with Gordon Brown today.

Mr Darling indicated there would be no back-tracking on the new higher rate of income tax, of 50p on earnings of more than £150,000, to be introduced from next April.

Amid warnings from business groups about the impact of hefty tax rises on the people he needs to drive growth, he is thought to have resisted calls to extend the rate to those earning £100,000 or more.

David Frost, director general of the British Chambers of Commerce said raising taxes on middle and high earners would be “enormously damaging” for Britain at a time when it needs talented people to drive an economic recovery.

“The very people we need in this country to create wealth could be located anywhere and will simply go somewhere else.

“Taxes above 50 per cent would be hugely harmful for the UK. This is the very time that we need as much business in the UK as possible.”

However, with borrowing expected to reach £180 billion, the highest level since the Second World War, Mr Darling warned that the rich would have to expect tax rises, saying: “You would expect the broadest shoulders to bear the greatest burden.”

Any windfall levy on banks’ profits would be designed to apply not just to UK banks such as the Royal Bank of Scotland and Barclays, but also to the British arms of global firms including JP Morgan and Deutsche Bank.

The decision has gone to the wire, however, as officials have been clashing over the legality and administrative complexity of the plans.

Mr Darling is considering two versions of a tax on bonuses, which are predicted to reach £6 billion this year despite the recession. The first would be a levy on payouts above a certain rate, the alternative would be a substantial increases in national insurance charges for banks which pay bonuses.

Mr Darling is said to be tempted to exploit voter anger at bankers awarding themselves large bonuses so soon after being bailed out by the tax payer.

The City has warned that the move would hamper the ability of institutions such as the Royal Bank of Scotland to attract the talent needed to restore balance sheets and ultimately delay banks’ ability to pay off the taxpayer loans and return to the private sector.

George Osborne, the shadow chancellor, said that he was not opposed to a banking windfall tax in principle, but that the Tories would focus on taking steps to stop banks offsetting losses against future tax bills once they began to make profits.

Vince Cable, the Liberal Democrat Treasury spokesman, accused both parties of a “lack of clarity”

The Daily Telegraph also understands that this Wednesday’s pre-Budget report will see the inheritance tax threshold frozen at £325,000, with plans to raise it to £350,000 cancelled.

This would allow Mr Brown to continue his strategy of accusing the Tories of seeking to deliver tax breaks for the wealthy. The Conservatives are committed to raising the threshold at which tax must be paid to £1 million.

However, Mr Osborne, disclosed that the impact of the recession meant that a Tory government would not legislate to raise the threshold for the first “year or two” in office. He said: “This country is virtually bust.”

KPMG have suggested that the Government might seek to levy a new 50 per cent inheritance band on estates worth more than £1 million.

However, Mr Darling refused to respond to predictions that he would use the PBR to “soak the rich”.

Accountants BDO had predicted that Mr Darling would raise the rate at which profits on capital investments are taxed from 18 per cent to 20 per cent. They suggested that there could even be a new Capital Gains Tax rate of 40 per cent on short term gains.

Ernst and Young forecast that he could introduce a new 60 per cent band for those earning more than £500,000 a year, raising an extra £2 billion annually.

Meanwhile, the accountants Grant Thornton suggested that an extra 70,000 people a year could to be dragged up into the 40 per cent tax bracket if Mr Darling froze the personal allowance on which no tax is due, even though average earnings rose 1.2 per cent.

Mr Darling is understood to be keen to give Labour ammunition with which to fight at the next election by painting the PBR as an equality budget.

He told the BBC’s Andrew Marr show: “It wouldn’t be right to be giving further tax breaks to people at the very top.”

Mr Darling said: “We are not going to be held to ransom by people who believe you can pay extraordinarily high bonuses without regard to what’s going on.”

The Chancellor warned of tough times ahead, saying: “On Wednesday I will set out what I think we need to do. That will involve some very difficult choices,” he said.

“It will mean making public spending much tighter.”

Tomorrow, ministers will make clear that high earners in the public as well as the private sector be made to bear the costs of the recession, with as many as one in five senior civil servants to lose their jobs.

In a speech, Mr Brown will promise £12 billion in efficiency savings across Whitehall, including £100 million a year from staff costs.

Mr Darling is likely to announce that some departmental budgets will face cuts of as much as 20 per cent while frontline services such as cancer care and teaching are protected.

As a first step, he disclosed that plans for a multi-billion pound super computer for the National Health Service would be cancelled.

Incentives and stimulus measures will continue, with Mr Darling poised to announce a new scrappage scheme, based on that for old cars, with households being paid £300 to trade in old boilers for new green models.

There will also be more money for jobs, after Yvette Cooper, the Work and Pensions secretary, disclosed that unemployment would continue to rise next year, above the current level of 2.5 million.

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