The financial crisis will result in tax revenues from City bonuses alone falling by as much as £4bn next year, according to one of Britain’s most influential economic forecasting firms.
Restrictions on bonuses at the banks which the Government is helping to rescue will also have the unintended consequence of lowering tax revenues Photo: MICHAEL WALTER
As investment banks, hedge funds and private equity firms – three of the principal drivers of the Square Mile’s explosive growth of recent years – cut tens of thousands of jobs, the Centre for Economics and Business Research (CEBR) expects the Treasury to face an overall City-generated taxation “black hole” of more than £10bn.
The CEBR believes the Government will collect around £5bn less than previously-estimated in corporation tax, while tax generated by bonuses, National Insurance contributions and base salaries is likely to fall by around £6bn.
The bleak forecasts underline the many ways in which cutbacks in the City, which has become a crucial engine of national economic growth, will contribute to an expected recession in Britain.
Restrictions on bonuses at the banks which the Government is helping to rescue will also have the unintended consequence of lowering tax revenues from City firms.
The deficit means Alistair Darling, the Chancellor, may need to borrow up to £110bn in the next financial year to plug the hole in the national balance sheet – almost three times the estimate of the £38bn forecast in his Budget statement last March.
CEBR research publishe last month predicted national borrowing would have to rise to £90bn, as turmoil hit the financial services sector and the sharp slowdown in the property market affected stamp duty receipts.
Douglas McWilliams, chief executive of the CEBR, said: “The outlook has deteriorated significantly since then, and off the top, I would expect borrowing for 2009 to 2010 of around £100bn to £110bn,” he said.
Mr Darling has already sanctioned a huge increase in public borrowing in an attempt to spend his way out of the recession.
By Mark Kleinman and Rowena Mason
Last Updated: 11:45PM GMT 08 Nov 2008
Source: The Telegraph