Offshore finance centres – to benefit from UK Budget?

May 19, 2009 - PRLog -- The recent decision by the UK government to increase tax on the countries high earners could have interesting repercussions for offshore jurisdictions. The Government has targeted the UK's highest paid to help to plug the country's multibillion-pound deficit but, in so doing, it has potentially sent a message to the wealth creators and financial elite that they are no longer welcome there.

Since the late 1970s the UK has built a first-rate financial service industry based, in no small measure, on its ability to attract the best innovators in finance. The revenue benefits have been huge: in 2007 the financial services industry contributed about £76.8 billion in taxes, 13.9percent of all government tax receipts. However, the Government has effectively increased the income tax rate for the City's rainmakers by 25 per cent, generating headlines such as “War on Wealth”.

Within the recent budget are further factors to be considered – that may cause many to seek sanctuary amongst the offshore finance centres. For example, companies employing expatriates earning more than £150,000 face much higher employment costs and will now pay £1 in tax for every £1 spent on basic benefits, such as living allowances.

It is interesting that The City of London estimates that 40 per cent of people working in the City and Canary Wharf come from abroad. This is a highly skilled, highly motivated workforce of finance professionals perfectly able to migrate to places where they can continue their finance careers, but are more welcoming.

Only last month the chief executives of a dozen of Britain's biggest hedge funds responded to “bash a banker” sentiment by reminding us that they do not need to be in the UK to do their job and that 10 per cent to 20 per cent of City jobs are linked to the hedge fund industry.

Already some of the larger offshore finance centres are ready to pounce, the CEBR, the economics researcher, has predicted that Switzerland would be the biggest beneficiary of the Budget as high-end taxpayers move abroad, estimating a loss in the UK over three years of 140,000 jobs, a fall in GDP in the City of 3 per cent and a loss in tax revenues of £800 million a year.

It is only a matter of time before financial institutions in Jersey, Guernsey, Malta, Luxembourg and Gibraltar and other parts of Europe see the present environment as an almost unique opportunity to lure financial talent away from London to new offshore jobs as they develop their own offshore financial centres.

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