The City will pay bonuses of nearly £7 billion, down from £7.3 billion last year. However, the taxman will take home more of the bonus pot than workers in the City as the new tax rate of 50% on income over £150,000 comes into force.
These are the key findings of updated research into the London and City economy by the Centre for Economics and Business Research (Cebr).
The temporary bank payroll tax introduced last year on bonuses over £25,000 is now expected to earn £3.5 billion for the Treasury, meaning available bonus pots are actually greater than previously forecast.
The new additional rate of income tax, which came into force in April, means City workers will now take home less than the taxman’s share. City workers will take home around £3.8 billion this year after paying employee National Insurance (NI) contributions and income tax, while the government is set to take around £4.1 billion as a result of bonuses, as employers also have to pay main rate NI contributions of 12.8% on these discretionary earnings.
However, bonuses for work completed in 2010 are expected to be lower overall compared to the previous year due to the weaker performance of City firms during the second half of this year.
Total bonus payments are significantly lower than the £11.6 billion paid out for 2007, owing to far fewer people now working in the City alongside a lower average bonus amount.
While the average City worker will still take home more than half of his/her gross salary, those at the top end of the bonus pile will pay more than half of their incomes to the Chancellor this year.
Benjamin Williamson, Cebr economist and co‐author of the research, said: “Our research shows that the public coffers stand to gain considerably more from city bonuses than city workers themselves.
“To be frank, this finding is quite timely because it seems that the wave of public anger towards bank bonuses may be ebbing a little. A whopping £7 billion bonus payout will be easier to stomach if the lion’s share goes to the nation.”
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