Goldman Sachs avoiding the 50p rate proves the folly of cutting it too soon

The 45p rate gets an artificial boost while 50p is made worse in comparison.

Goldman Sachs is considering whether to defer bonuses for its employees into the new tax year, starting 6 April, in order to avoid the 50p tax rate.

The Guardian's Jill Treanor reports:

A number of banks are known to have considered whether to make the move, which would save their top employees thousands of pounds. But City sources believe many of them have rejected the idea to avoid any negative publicity in the wake of the row surrounding corporation tax paid by Starbucks in the UK.

The Wall Street firm – which publishes its full year results on Wednesday and tells staff their bonuses for 2012 shortly afterwards – is not thought to be considering changing the way the bonuses for 2012 are handed out. The proposal being considered would benefit parts of bonuses deferred from the years 2009, 2010 and 2011, which are due to be handed to staff this year in the form of shares.

The move underlines the lack of evidence available that the 50p rate actually hurt revenues. HMRC's analysis in March last year determined that the optimal tax rate was 48 per cent, a figure which 1) didn't justify cutting the rate to 45 per cent and 2) was only derived due to a specific statistic – TIE, taxable income elasticity – being given a value of 0.45. Given studies cited by HMRC for TIE showed it being anywhere from -0.6 to 2.75, there's rather a lot of uncertainty in that analysis.

But the bigger problem for evidence of the tax cut's effects is that, in cutting the 50p rate so rapidly, the Chancellor destroyed the possibility that we might actually get some useful data. The most effective way to avoid the tax is to shift income forward or backward. As a result, the first year it was in operation revealed that £6.6bn of taxable income had been shifted forward by a year; and we now know that this year, the last it will be in operation, a significant chink of income will be shifted back to the 2013/14 tax year.

Add in the fact that even HMRC assumed that some income in 2011/12 will have been declared in 2009/10, and some more will have been coincidentally forestalled to 2012/13 (when it could be forestalled further to 2013/14), and it is clear: there has not been a single year when a "normal" amount of tax was paid at the 50p rate. Every year it was in operation will have resulted in an artificially depressed take.

Similarly, the 45p rate will, for the first few years of its operation, have an artificially boosted take. It will look far more effective at discouraging tax avoidance than it actually is.

Consider this a warning, then: 2014 will see a lot of attempts to misuse data to prove a point. Don't take it at face value.

Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Inside a shaken city: "I just want to be anywhere that’s not Manchester”

The morning after the bombing of the Manchester Arena has left the city's residents jumpy.

On Tuesday morning, the streets in Manchester city centre were eerily silent.

The commuter hub of Victoria Station - which backs onto the arena - was closed as police combed the area for clues, and despite Mayor Andy Burnham’s line of "business as usual", it looked like people were staying away.

Manchester Arena is the second largest indoor concert venue in Europe. With a capacity crowd of 18,000, on Monday night the venue was packed with young people from around the country - at least 22 of whom will never come home. At around 10.33pm, a suicide bomber detonated his device near the exit. Among the dead was an eight-year-old girl. Many more victims remain in hospital. 

Those Mancunians who were not alerted by the sirens woke to the news of their city's worst terrorist attack. Still, as the day went on, the city’s hubbub soon returned and, by lunchtime, there were shoppers and workers milling around Exchange Square and the town hall.

Tourists snapped images of the Albert Square building in the sunshine, and some even asked police for photographs like any other day.

But throughout the morning there were rumours and speculation about further incidents - the Arndale Centre was closed for a period after 11.40am while swathes of police descended, shutting off the main city centre thoroughfare of Market Street.

Corporation Street - closed off at Exchange Square - was at the centre of the city’s IRA blast. A postbox which survived the 1996 bombing stood in the foreground while officers stood guard, police tape fluttering around cordoned-off spaces.

It’s true that the streets of Manchester have known horror before, but not like this.

I spoke to students Beth and Melissa who were in the bustling centre when they saw people running from two different directions.

They vanished and ducked into River Island, when an alert came over the tannoy, and a staff member herded them through the back door onto the street.

“There were so many police stood outside the Arndale, it was so frightening,” Melissa told me.

“We thought it will be fine, it’ll be safe after last night. There were police everywhere walking in, and we felt like it would be fine.”

Beth said that they had planned a day of shopping, and weren’t put off by the attack.

“We heard about the arena this morning but we decided to come into the city, we were watching it all these morning, but you can’t let this stop you.”

They remembered the 1996 Arndale bombing, but added: “we were too young to really understand”.

And even now they’re older, they still did not really understand what had happened to the city.

“Theres nowhere to go, where’s safe? I just want to go home,” Melissa said. “I just want to be anywhere that’s not Manchester.”

Manchester has seen this sort of thing before - but so long ago that the stunned city dwellers are at a loss. In a city which feels under siege, no one is quite sure how anyone can keep us safe from an unknown threat

“We saw armed police on the streets - there were loads just then," Melissa said. "I trust them to keep us safe.”

But other observers were less comforted by the sign of firearms.

Ben, who I encountered standing outside an office block on Corporation Street watching the police, was not too forthcoming, except to say “They don’t know what they’re looking for, do they?” as I passed.

The spirit of the city is often invoked, and ahead of a vigil tonight in Albert Square, there will be solidarity and strength from the capital of the North.

But the community values which Mancunians hold dear are shaken to the core by what has happened here.

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