Darling’s raid will drive away bankers - Applewood

Alistair Darling’s raid on bank bonuses will drive away the cream of the UK’s banking talent, says director of Applewood Wealth Management, Karl Hartey.

Commenting on the Chancellor's Pre-Budget Report, Hartey says the UK - already at risk of losing its AAA rating - will now become even less desirable as an investment centre.

He says bankers will bear the brunt of Darling's clampdown. "The UK has some of the finest banking talent in the world - but this will go elsewhere," he predicts.

The combination of the top rate of income tax, the bonus levy and national insurance contributions, says Hartey, could mean some bankers effectively working for around 20 pence in the pound.

"It's a throwback to the old days of the 70s," he says.

According to Hartey, overregulation is killing the banking industry and leading it down the same path as the insurance sector.

"The big, traditional insurance companies now sell very few products and have all moved elsewhere," he says. "Prudential, for example, has a huge presence in India. Regulation has killed traditional insurance companies in the UK and forced them to move away and this has created a huge savings problem.

"The banks will do the same - they will go elsewhere and the consumer will be left with less choice."

He also warns restrictive taxes and a possible downgrade will have grave ramifications for the country's global standing.

"Foreign investors will look at the UK and see it is highly taxed, its government is taking a reactive, rather than proactive, approach to the state of the economy and will draw the conclusion that there are lots of better places around the world to invest.

"In the US, the UK is viewed as a small player with a messed up economy. Our country is just like a fund or a company and the Government serves is its director. But who would invest in GB plc?"

Hartey, who runs an investment portfolio, says recent conversations with fund managers reveal much negative sentiment.

"The general theme emerging is not to invest in the UK. It is all about Europe and the Far East," he says.

He also raises the spectre of a weakening pound as money is taken out of the country and invested elsewhere.

In terms of the impact on Applewood's clients, the majority of which are retired, Darling's inheritance tax freeze could prove detrimental. The Chancellor froze the rate at which inheritance tax is paid at £325,000 until 2011, meaning more estates are likely to come under the hammer.

"This is a big U-turn," says Hartey. "In 2007, the Government said the cap would be £350,000."

Hartey adds that there remains confusion with regard to inheritance tax on properties that fit into trusts. He fears that should Labour win another term it will impose a 50% inheritance tax across the board.

Summing up, he acknowledges that taxes must be raised to help reduce the country's debt mountain but thinks the Government has gone about things in a shifty manner.

"The RDR is all about transparency and honesty - but the very people who enforce this are not being transparent with all these hidden taxes."

He thinks raising income tax a couple of pence across the board will go some way to repairing the country's economic damage.