At the same time as the Prime Minister is to drop plans to scrap the 50p rate of income tax, he has also promised to give company shareholders a binding vote on executive pay.
According to the Daily Telegraph, David Cameron has come to the conclusion with Chancellor George Osborne that abolishing the tax for those earning more than £150,000 would be politically impossible in today’s current economic climate if the Coalition Government wishes to avoid being accused of pandering to the rich – particularly when the public sector pay freeze has effectively been extended until 2015.
As a result, the levy will not now be scrapped until 2015 at the earliest. One Government source said: “We are repeatedly emphasising the need for those with the broadest shoulders to do more. So we can hardly turn around and start cutting taxes for them first. George said last year that it was not the time to scrap the 50p rate and that is even more the case now as the economic situation has deteriorated.”
Moreover, HM Revenue & Customs is in the process of preparing a report for the Chancellor on the revenues earned from the levy, which was introduced by Gordon Brown in 2010. The study is expected to show a “surge” in revenues totalling hundreds of millions of pounds in its first year of coming into force, undermining the economic case for scrapping it.
Cameron has come under increasing amounts of pressure from his backbenchers and some business leaders to scrap the tax amid claims that it would stimulate economic growth. He has previously intimated that he is sceptical about the revenue-generating ability of the levy and that he believes it should only be temporary.
Executive pay
Yesterday, however, the Prime Minister also announced a crackdown on executive pay. As a guest on BBC One’s Andrew Marr Show, he said that “excessive” bonuses made “people’s blood boil”, adding that the “Government can’t tell people what they should be paid, but [should act] where you’ve got a market failure”.
Some bosses’ pay was not justified and meant that they were “taking money from the owners of the companies and from pension-holders and the employees. This is what we will be addressing,” Cameron added.
Shareholders are currently able to take a non-binding or advisory vote on executive renumeration. But the measures under consideration are said to include shareholders being given a veto both on pay packages and on the deals awarded to executives when they leave jobs at which they have failed.
Cameron promised “clear transparency in terms of the publication of proper pay reports and binding shareholder votes” and claimed that, in future, rewards would be “linked to success, not failure”. He hinted that new legislation could be announced in the Queen’s Speech, which is likely to be made in the Spring.
But the Institute of Directors told the Telegraph that allowing shareholders to reject a wage or bonus would create a litigious minefield that could damage companies’ ability to hire top-level directors. “It wouldn’t be practical or a good idea after the renumeration committee had set pay, not only from a legal point of view, but recruitment too,” a spokesman said.
The news came only a day before the Financial Times indicated that John Hourican, chief executive at the Royal Bank of Scotland’s struggling global banking and markets division, is about to receive a £4 million share windfall. The revelation is embarrassing to the Prime Minister as RBS is 83% owned by the taxpayer following its bailout in 2008.
