Speaking at a Treasury Select Committee evidence session on the pre-Budget report this morning, Treasury director of enterprise and growth Peter Schofield said this was because bonuses will be reduced as a result of the tax, and that will have a knock-on effect on income tax and national insurance contributions.
He said: “£550m is a net figure because one of the effects of imposing this charge is that bonuses will be reduced and that of course reduces income tax and national insurance contribution payments.
“So the £550m is less than the amount – even on our cautious forecasts – we would expect the banks to pay. We would expect the banks to pay approaching £1bn on that forecast and then there is a netting off and reduction in Nics which flows from the behavioural responses to that tax.”
Schofield said the Treasury was in talks with HMRC and the FSA over how to identify those institutions that would be expected to pay the tax and said clarification should come in the coming “days or short weeks”.
He estimated that between 20,000 and 30,000 individuals would be subject to this tax and said he thought it was unlikely that bonuses would simply be deferred until 2010. He said the tighter regulatory framework being introduced in the Financial Services Bill in 2010 would go a long way to preventing this.
Schofield added: “There is no target in here; the policy is succeeding if the bonus culture starts to be changed. And this is only part of the jigsaw of measures which are seeking to change the bonus culture in the banks.”