There was precious little good news in this week’s budget, but one thing Alistair Darling made much of was the fact that he was able to reduce his forecast of the UK budget deficit from £178bn to £167bn for this year.
But is this actually good news? I suspect not. Why? Because the larger than expected tax revenues he is so pleased with could well have been stolen from the future.
The introduction of the 50% tax rate from the beginning of the new tax year (now a matter of weeks away) has meant that huge numbers of companies both large and small have moved bonus payments forward for all their staff.
Only today it was reported that Sainsbury’s is to bring forward bonus payments for their 1,200 most senior managers on the perfectly reasonable grounds that it is “fairer to the individual for the proportion of their bonus awards that are based on Sainsbury’s financial performance to be paid, and therefore taxed, in accordance with the rates that applied across the financial year in which they were earned.”
M&S is doing the same – paying cash bonuses to all its 78,000 staff this tax year instead of next so that the high earners among them can avoid the 50% rate.
Indeed, think of a high street name from Tesco to Dairy Crest and it’s likely, as the Independent puts it, they have been “working around the clock” to get their accounts signed off early so they can pay out bonuses. Most of the UK’s banks and investment companies have done the same.
And it isn’t just the big firms that are at it: accountants have reported “a rush of business owners” paying themselves special dividends and bonuses in advance of 6 April.
It is hard to know exactly how much has been paid out in advance, but the odds are that the tax revenues from it make up a fair bit of the £11bn Darling was chucking around this morning. That doesn’t bode particularly well for next year’s revenues.