A 50% tax on bankers’ bonuses along with increased support for the unemployed were among the measures, annouced by the Chancellor in yesterday’s pre-Budget report.

As expected, the Chancellor announced that bankers’ bonuses above £25,000 will now be subject to a 50% one-off tax.

Elsewhere, from April 2011, national insurance contributions will rise by 0.5%. This is in addition to the 0.5% announced in the pre-Budget report last year.

Around 10,000 undergraduates from poor backgrounds will be given financial support for internships in industry.

From next year, under-24s will no longer have to be unemployed for longer than six months to qualify for guaranteed work or training, while the minimum number of hours people over the age of 65 are required to work to receive Working Tax Credit is to be cut.

Business is to benefit from time to pay schemes being extended for as long as it is needed, while the planned increase in corporation tax of 1p in 2010 for small businesses is to be deferred.

Recruiters looking to expand next year will welcome the news that properties with a rateable value of below £18,000 will be exempt from paying tax on vacant commercial properties from 2010/11.

Bankers’ bonuses reaction

Ken Brotherston, chief executive of the international executive search firm GRS Kinsey Allen, said: “The announcement of the higher rate of tax for bonuses for top earning bankers today has inevitably led to claims of a massive brain-drain of our best talent. Whilst it is clear that recent changes to tax allowances and rates now may make the UK less competitive, the key question, at least in the short term is: where will they go?

“In considering whether a candidate will relocate you must always consider a whole host of personal factors: a spouse’s career, schools, climate, age of parents, language barriers, social life and so on. The idea that a senior executive will quickly and easily up sticks to another country is simply not true and the government know this.”

Ben Barrat, head of talent acquisition at Alexander Mann Solutions (AMS), says: “We have already seen these banks offering 30-40% increases in base salary as a way of retaining staff without using bonuses. As restrictions tighten, this is likely to continue with employers offering share options and other benefits instead of a straight-forward cash bonus.
 
“Banks know that, by investing in executive recruitment now, they can give themselves a big competitive advantage in the New Year and so I would expect to see significant numbers of people recruited from the bailed-out and under-performing banks over the next few months.

“Workers in the City tend to have a very good idea of what is going on in other businesses and they know that, at the moment, there’s a good chance that the grass is greener elsewhere.”

Richard Lambert, CBI director-general, says: “A headline-grabbing tax on bankers’ bonuses may have populist appeal, but the government needs to take care not to put the UK’s financial services sector at a comparative disadvantage internationally. The threat of an exodus of talent is real.”

NIC rise reaction

Michael Carter, a partner at Addleshaw Goddard, said “This is an additional tax burden on employers and employees, which was not highlighted by the Chancellor in his speech. NIC is again being used as an easy means of raising tax income from employers and employees.”

Matt Ellis, employment taxes partner at Deloitte, says: “This means that all employees earning over broadly £40,000 face an uncapped 2% NIC charge on all their earnings.  

“Employers, who were already bracing themselves for the headline employer rate moving from 12.8% to 13.3% in 2011, will be disappointed by the further increase to 13.8%.

“For example, for an employee earning £50,000 a year, the change will mean an increase in NIC of £5.46 per week/£283.80 per annum. For their employer, it will mean an increase of £8.26 per week/£429.55 per annum.

“When the original 1% uncapped liability for National Insurance was introduced we always speculated that it would provide an easy platform for government to raise revenue without increasing the headline rate of income tax.  And that’s what we’ve seen today.  Undoubtedly, many employers will try to mitigate the impact of this rate increase by using salary sacrifice arrangements, to ensure that the overall pay and benefits package is more tax efficient.”

Charles Cotton, reward adviser at the Chartered Institute of Personnel and Development, says: “This tax on jobs will hit at a time when we are still likely to be in the early stages of a ‘jobs light’ economic recovery – this is not the tonic a sickly labour market needs.”

Unemployment measures reaction

David Coats, associate director at The Work Foundation, says: “The guarantee of a job after six months without work to all those aged under 25 is a bold policy and is exactly what The Work Foundation called for in our submission to the Chancellor.  Keeping young people in touch with the labour market is the right thing to do in these challenging times.”

REC chief executive Kevin Green says: “This was a crucial pre-Budget report for jobs. While we welcome measures to support jobseekers – such as extending training or work for under 25s after six months and funded internships – the government has not gone far enough in terms of stimulating demand for staff. The Chancellor underlined the crucial role of the UK’s flexible labour market in limiting unemployment. The way that new regulations – in particular, the EU Agency Workers Directive – are implemented will be an acid test of the government’s commitment to protecting the viability of flexible working options.”

PCG managing director John Brazier adds: “There was a lot of talk by the Chancellor today about fairness, however this PBR has failed the fairness test for the UK’s 1.4m knowledge based freelancers.  IR35 was not abolished, NICs are to go up in 2011, by double what he previously said and the only crumb of comfort is that the small business corporation tax rate rise is to be deferred.  The borrowing figures are huge and the public expenditure cuts in years to come are bound to be savage, affecting all sectors of the economy and ordinary people.”