High Earners' Tax Could Spark Talent War

Last Updated Nov 26, 2008 2:46 PM EST

Chancellor Darling's Pre-Budget Report took a Robin Hood-approach to the UK's top earners to which even captains of industry couldn't disapprove. But there may be unwanted consequences for UK competitiveness as talented workers reassess their options.

In a few years, anyone bringing home over £40,000 -- that's where the top layer of earnings begins in the UK -- will be paying an extra £1,000 in taxes, while the super-earners over £150,000 will be stung for 45 per cent tax (a staging post, say some, to an inevitable 50 per cent).

While those at the top end of the earnings pyramid may well be able to afford higher taxes, they may not want to -- especially if their talents can be put to use in lower-cost economies.

Matt Ellis, employer services partner at Deloitte, predicts the war for talent will escalate as talented people opt for cheaper places to live, or look to employers to mitigate the high cost of living in Britain. Companies could offer shares to employees (which attract less tax) or advance income ahead of the 2011 change of rate, but it all comes down to higher employment costs.

National Insurance Contributions will rise by 0.5 per cent from 2011. Anyone earning more than £20,000 will be worse off, with the overall cost of £3.8bn in 2011-12, according to KPMG.

Arguably, globetrotting entrepreneurs and, in particular, venture capitalists may look less favourably on the UK as a potential HQ, even though the PBR pushed through several measures to kick start small businesses. Likewise, multinationals, which have been given a break on foreign dividends, may find it more expensive to keep their top talent in Britain.