The Chancellor has handed the chief executives of the UK’s largest companies an extra £34.4m in disposable income today by abolishing the additional rate of income tax on earnings over £150,000.
New Statesman analysis of data from the High Pay Centre shows Kwasi Kwarteng’s decision to remove the 45 per cent additional rate of income tax from April 2023 will mean FTSE 250 chief executives receive an extra £148,273 on average – 4.7 times the median full-time UK worker’s salary of £31,285. This benefit will accrue to a group that already earns, on average, almost 100 times more than the national median salary for a full-time job.
Pascal Soriot, the chief executive of pharmaceutical giant AstraZeneca, is the highest-paid boss on the FTSE 100 and stands to save the most after the announcement. Soriot will take home an extra £685,400 on his £13.9m salary, according to our estimate, which uses data taken from the company reports of 232 of the UK’s largest companies but does not account for pension allocations, share awards and other benefits which may further reduce or otherwise change an employee’s tax obligations. The amount Soriot is estimated to save by not paying the additional rate is 11.8 times the average lower-quartile salary at AstraZeneca, which is £58,000.
Brian Cassin, the chief executive of credit report provider Experian, will make an estimated saving of £489,400 on a salary of £9.9m. His saving will equate to more than 11 times the average lower-quartile Experian salary of £43,957.
Earlier this month, Liz Truss told the BBC that cutting taxes for the highest earners was “fair”, because “the people at the top of the income distribution pay more tax”. However, top earners are actually already favoured by the tax system because their wealth and income are much more likely to be held as investments, which have different tax allowances, or as property, or to be held offshore. A recent study led by Arun Advani at the University of Warwick found that one in ten people earning over £1m a year had a lower effective annual tax rate than people making £15,000 a year. The study put the annual cost of legal tax avoidance by high earners at £20bn a year.
Not every CEO in the FTSE index will benefit to such a degree. Tim Martin, the Brexit-loving founder of the pub chain Wetherspoon, will save a relatively measly £33,150 – not even twice his company’s average lower-quartile salary of £19,829. And for any CEOs resident in Scotland, a higher additional rate (of 46 per cent) will still apply on earnings over £150,000, because the Scottish government has the devolved power to set income tax separately.
However, some executives can also be resident in another country, which will exempt them from paying tax if they spend fewer than 183 days a year in the UK. There are also more than 60,000 people who are not obliged to pay UK tax on foreign income having claimed “non-domiciled” status. And Kwarteng’s decision to scrap IR35 rules on workers who register as self-employed will mean high earners can legally reduce their tax bill still further using personal services companies, rather than being salaried employees.
The High Pay Centre holds a yearly “High Pay Day”, marking the point in the year at which the average FTSE 100 CEO’s earnings are higher than the median full-time UK salary. It has never been held later than the first week of January.