On Friday 23 September, as Kwasi Kwarteng announced plans to scrap controls on bankers’ bonuses and abolish the top rate of income tax, workers on one of London’s biggest trading floors high-fived and “banged their desks in applause”, according to a report in the Sunday Times.
But the atmosphere across other parts of the City was less celebratory. Over the past two days, executives, bankers and lawyers have told me they would rather live in a properly functioning state than have a slightly higher number on their payslip.
All spoke on the condition of anonymity: for some, that was because their employers would rather they don’t speak to the press – but for others, it was because they are ashamed that the limelight is once again on them. “There’s been a massive clean-up in terms of our reputation following the 2008 crisis,” said one. “This kind of stuff really doesn’t help.”
A high-ranking executive at a FTSE 100 company, whose earnings this year will be “close to £1m”, said the tax cuts will increase his take-home pay by about 10 per cent. It was a “weird feeling”, on Friday, to realise that the mini-budget was “probably worth £40,000 or £50,000 to me”, he continued. His kids are in private school and his medical care is also private – “no one I know would use the NHS for GPs” – but a recent five-hour wait for an ambulance reminded him of the precarious state of public services. “Everyone has to care about A&E services,” he added. “You can’t contract out the state.”
The executive said the money he saves from the measures announced on Friday won’t go back into the economy. “The reason trickle-down economics generally doesn’t work in practice is that the wealthy have a much higher propensity to save than the people who are less wealthy,” he said. “And that’s what I’m going to do. Am I going to take that £40,000 and spend it? No. Not really. I’ve got the lifestyle that I want. My financial priority is putting myself in a position where I don’t need to work as hard as I’m currently working.”
An economist at a City bank, whose £120,000 salary is boosted by an annual bonus that is “anywhere between 30 per cent and 50 per cent” of that, agreed. “My colleagues already have the holidays in Hawaii. They’re not going to take more holiday,” she said. “There’s only so much money that they’re going to spend. This is just going to go into their savings accounts.”
The economist said she felt “embarrassed and ashamed” when the measures were announced – but also a little confused by the argument that the measures will boost productivity. “I don’t think there’s any push coming from [the financial sector] that this is what we want or what we need,” she explained. “The idea that personal income tax changes are going to drive productivity seems totally ludicrous. My colleagues, who make multiples of what I earn, aren’t going to be able to produce any more work. There are only so many hours in the day, and we already work around the clock.”
Around 600,000 people were meant to pay the 45 per cent rate of income tax this year; removing the additional rate will have a “mechanical cost”, according to the Institute for Fiscal Studies, of £6bn per year. Many in the City see this simply as bad accounting.
A partner in a City law firm, who earns £350,000 a year, said even his most libertarian colleagues aren’t impressed. “[A friend] said he felt in principle that cutting taxes was a sensible idea, but he felt the degree to which it had been done and with no other revenue-generating mechanisms, it was enormously risky at this particular time.” His own view is rather more blunt: “This is the economic equivalent of standing by an out-of-control fire and knowing that there’s a theory that if you detonate a huge explosion, it might use up all the oxygen and put the fire out – but it could also make things massively worse.”
What Kwarteng seems to have forgotten is that even the very wealthy have friends and family who aren’t as fortunate. “The news came through when I was sat in a car with one of my oldest friends, whose wife is a midwife,” wrote an employee at a large asset manager. “The increase in my take-home pay as a result of Friday’s announcement is equal to his wife’s entire pay. That seems both unjust and, in light of the mess the NHS is in, just plain stupid.”
[See also: Has the Bank of England lost control?]
A former commodities trader, who was on £250,000 a year before leaving his City job two years ago, takes a similar view. “My wife works in the education sector,” he said. “She spends our income on things for her school because they just don’t have it. So she goes to WHSmith and loads up a trolley with 150 quid’s worth of stuff for arts and crafts. You’re thinking, I’ve got no problem doing that, because I don’t need the money. But I have a problem with the fact that we need to do that.
“I want my children to have the choice of not feeling they are forced into going down a particular route, because it’s the only option they have to survive. If they want to be teachers, I want them to do that and think they’ll be alright, not that they’ll have to work a night shift because they can’t afford to pay their rent.”
None of the people I spoke to believe the measures will be enough to encourage financial services to come to the UK. “I don’t think it’s going to lead to any decisions where boardrooms will say, ‘The UK is the place to be’ – I just can’t see that,” said the executive.
The economist added: “If it really is about driving productivity and driving growth, then there are some really obvious things that they should be doing first. If they’re worried about UK competitiveness in terms of attracting bankers to work here, Brexit is obviously the number one thing that’s driving people away. I have colleagues who have to move to the EU because of Brexit. It’s not about income taxes, we’re talking about the regulatory landscape.”
“Bankers will follow the money,” she said. “It’s the money that’s having to leave the UK because of Brexit. If that happens, then bankers will follow.”