(27 April 2009)

The government’s ‘soak the rich’ budget will hit London four times harder than the rest of the UK, according to an analysis of Treasury figures by the Greater London Authority today (Monday 27th April). The budget will land high earners in the capital with an extra £5bn tax bill over the next three years. 145,000 Londoners earning over £100,000 will be hit by the new ‘banker taxes’, including 83,000 earning over £150,000 a year.

The Treasury predicts the new taxes will raise £7bn a year from 2012 from across the UK, of which GLA Economics calculates £2.49bn will come from London. London will be paying more than a third of the new taxes, even though it has only one eighth of the UK population. That means that the taxes are expected to raise on average £332 per Londoner per year, nearly four times the average rate of £86 per person that they are expected to raise in the rest of the country excluding London.

Boris Johnson said: ‘Our capital is the engine room of the UK economy, generating 17 per cent of the UK’s GDP each year and yet our figures show that the Government’s plans for high earner taxes will hit London four times harder than the rest of the UK. Penalising high earners with higher taxes could undermine London’s competitive edge. It runs the risk of driving highly skilled workers away from and deterring others from coming to our great city – which is a real concern to me.’

Anthony Browne, the Mayor of London’s policy director, said: ‘Our analysis of the Treasury’s own figures show how the government’s class-war assault on high earners is really an assault on London. Across the rest of the UK, the new taxes will have little impact, but they will bear down heavily on the capital. This is bad news for London as it struggles to recover from the worst recession since the Second World War. It will suck money out of the London economy and target the high earners on which the London economy depends. There is a real danger that this will hit the London economy when it is down, and thus damage the rest of the UK’s economic prospects.’

The new figures are the result of the first detailed analysis of budget forecasts to look at the impact on London of the new high earner taxes (the 50p rate for those earning over £150,000 a year, the restriction of tax relief to 20 per cent for those earning over £150,000 a year, and the withdrawal of personal allowances for those earning over £100,000 a year.) It shows they will cost London £710m next year, but that escalates rapidly after the general election, costing Londoners £2.49 billion by 2012-3. Around half of that (£1.1bn) will come from restricting tax relief to 20 per cent for people earning over £150,000. The new 50p supertax will itself raise about £900m a year from the capital from 2011 onwards. In total, the new taxes are expected to raise £4.7bn from London over the next three years.

Many analysts, including the Institute for Fiscal Studies, have suggested that the government won’t raise nearly as much as it predicts from the new high taxes, as high earners will take steps to avoid them. They will either move away from the UK, locate their business affairs overseas, re-arrange their tax affairs, or simply work less. Similarly, high earners are also expected to be less likely to move to the UK.

Mr Browne said: ‘Far more than the rest of the UK, London has an internationally mobile workforce, and its success depends on being a global magnet for talent and business. Having a competitive tax regime is a key part of that, but we will now have the highest income tax rate of any major economy in Europe, or any global commercial centre. This new barrage of taxes on high earners comes on top of the government’s assaults on non-doms, which is also a largely London phenomenon. It sends out a message that high earners are not welcome, when they are not only welcome in London, but an essential ingredient in London’s success. This isn’t about defending the rich, but defending the economy. If high earners either stop coming here, start leaving, or simply work less, it would be a real setback for the London economy. The government will have achieved a real double-whammy – it will have failed to raise much extra revenue, and at the same time strangled the economy. The government must not kill the goose that lays the golden egg.’