News Analysis

Will 50p tax rate lead to technology brain drain?

Barry Murphy

The 2009 Budget, confirmed the fiscal holes that have dominated much of the headlines in recent weeks. Whether the growth predictions will be realised, and the spending cuts delivered is the big question, writes Barry Murphy tax partner with PricewaterhouseCoopers.

The Chancellor tightened the previously-announced higher taxes for the wealthier, phasing out personal allowances in full for incomes of £100,000+ from next year. The planned 45% tax rate on incomes of £150,000+ will be 50%, and will come in from April 2010.

These changes make the UK one of the most expensive places to live in the G20 group of nations from a tax and social security perspective, for those on higher incomes. In addition to worries about a "brain drain", there is concern about a "brain blockade" as highly skilled people in the technology industry may now shun coming to the UK in favour of competing locations.

Despite the higher income tax changes there was a clear message for the technological future of the UK in terms of ensuring that "the entire country benefits from the digital age". There was extra funding for digital investment, aimed at helping extend broadband networks to every community, enabling the vision set out in the Digital Britain Report to become a reality. It is welcomed that the Chancellor should focus on developing the UK's core technology capability, its scientific knowledge and commit to investment in the future.

The Chancellor led the way with a £750m Strategic Investment Fund, to help the UK seize the opportunities ahead, providing financial support focusing on emerging technologies and regionally important sectors. Although, the detail of the delivery and allocation mechanisms for this £750m are still unclear. There was further promising news from the government announcing a consultation on ways of making the UK a more attractive location for innovative activity, and for promoting investment in R&D and intellectual property.

This reflects developments in other jurisdictions such as 'royalty boxes' which have been used to promote innovation; this is an indication that the government recognises that the UK needs to compete with these regimes if it is to attract investment. While some would have preferred additional measures such as student loan rebates for science and technology graduates, and further support to encourage the development of UK talent, any measure of assistance, given the economic straitjacket the Chancellor is in, was helpful.

The proof of the pudding is always in the eating and it will be a case of seeing how in reality the Chancellors 'digital age' measures transpire, with the first steps for companies being that they now need to investigate how they might access some of the new Strategic Investment Fund so as to lead the way.


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