The Labour Party is proposing an “Excessive Pay Levy” on businesses offering very large salaries
The Labour Party manifesto, published today (16.5.2017), contains this commitment:
“Labour will also legislate to reduce pay inequality by introducing an Excessive Pay Levy on companies with staff on very high pay.” (page 17)
A report in The Guardian today suggests Labour would charge companies a 2.5% levy on earnings above £330,000 and 5% on those above £500,000. This “fat cat tax” would be calculated on the basis of basic salary, shares, bonuses and pensions taken together. The rates, the newspaper says, would mean a company paying an extra £4,250 for every person receiving £500,000 in pay and benefits or, for a person earning £1m a year, £29,250.
Labour estimates this measure would raise £1.3bn.
It is interesting to see a major party proposing a tax which more or less explicitly targets the so-called “1%”. It was perhaps inevitable that a measure like this would be suggested sooner or later.
Taxation can be a blunt instrument. The risk in setting an extra tax of this kind is that clever avoidance measures may be adopted by those who can afford the advice to enable them to do so. It might be better, if reducing pay inequality is the goal, for businesses themselves to show much greater restraint in pay at the top. There have been one or two signs of this happening in the current AGM season, but it has been little, and late. In these circumstances it is legitimate to consider other policy options.
There is deep public concern, and anger, at excessive pay at the top. Taxing businesses which offer very high packages would raise some useful revenue for the government, while perhaps encouraging businesses to consider restraining pay at the top.
It is clearly a policy measure that deserves further consideration, and makes a welcome contribution to debate.
We will now look to see if the Conservative party is prepared to commit to measures that might also be successful in calming the growth of excessive executive pay.