Attracting financial services professionals will be a ‘problem’, says industry body.
The ABI has criticised the tax increases in Alistair Darling’s pre-Budget report, saying they will make London less attractive as a financial centre.
The chancellor said on Monday that he would raise National Insurance and increase income tax on incomes of more than £150,000. The top rate of income tax will rise from 40% to 45% in 2011 (see right and below).
But the ABI said this was the wrong way to tackle the UK’s financial problems and stimulate the economy.
“Attracting talent to work in the UK financial services industry will be a problem,” a spokesman said.
The ABI has also criticised the government’s proposal to bring forward £20m of spending on flood defences to 2009/10. It pointed out that severe flooding in 2007 cost the industry £3bn and said £20m was not large enough.
Nick Starling, the ABI’s director of general insurance, said: “The chancellor failed to understand the importance of flood defences last year and failed again this year. To bring forward just £20m of expenditure from the £850m allocated is a token gesture and a missed opportunity.
“Building the nation’s flood defences is a quicker and straightforward way to spend money and improve the nation’s infrastructure than some of the areas the chancellor has focused on.”
However, the ABI praised the measure in the pre-Budget report to make foreign dividends received by large and medium-sized groups on ordinary shares and most non-ordinary shares exempt from UK tax.
The ABI said this would encourage companies to bring back profits to the UK to invest, as well as spend.
Peter Vipond, the ABI’s director of taxation, said: “It sends a positive message to UK businesses that have been considering relocating abroad.”
The report also brought the tax rules for Lloyd’s into line with the rest of the industry. It will be able to put money aside in good years to offset losses in bad years, something it previously was not able to do.
The move will help Lloyd’s insurers compete with Bermuda and Dublin, which have low corporation tax rates.
Lord Levene, chairman of Lloyd’s, said: ”We welcome this decision, which finally brings the tax treatment of Lloyd’s reserves into line with other UK insurers and will contribute to our ability to compete globally.”
Ã¢â‚¬Â¢ The rate of income tax to rise from 40% to 45% on earnings of more than Ã‚Â£150,000 from 2011.
Ã¢â‚¬Â¢ National Insurance to go up by 0.5% from 2011.
Ã¢â‚¬Â¢ Vat cut from 17.5% to 15% from
1 December, which could save insurers an estimated Ã‚Â£71m a year.
Ã¢â‚¬Â¢ LloydÃ¢â‚¬â„¢s allowed to keep reserve funds in good years to offset
losses in bad years.