How to cap City bonuses

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So the boss of the FSA says he can’t cap City bonuses, no doubt because he’s a banker.

University professors say he should.

Now I happen to think capping may be hard. Making sure that bonuses don’t pay is not hard to do. There are numerous ways to price them out of the market:

First, uncap National Insurance Contributions over £100,000 i.e. make all on salaries above that sum pay NIC at 11%, not the 1% they pay on that level of earnings now.

Second, increase the employer's NIC rate on salaries over £100,000. Currently up to 12.8% and reduced for contracted out pensions first make it a mandatory 12.8% without exception to £150,000, then 15% to £200,000, and 20% over £250,000 and so on up to 50% at £550,000 and above. Use the averaging method for such salary levels to make sure these rates are collected, of course.

Third, deny tax relief on all salaries over £200,00. That will cost a marginal 28%.

Broadly speaking (and ignoring the rates on the first £100,000) this will increase the net tax cost of many current £500,000 bonuses from current rates of about 10% combined NIC of £50,000 less tax relief of about £153,000 (meaning net cost to the employer of about £393,000) to a total cost to the employer (the National Insurance Contributions rates applying to total pay, not banded pay) of about £750,000, with the employee receiving approximately £50,000 less at the same time.

In other words, by playing with just National Insurance Contributions and corporation tax  the cost of bonuses could be more than doubled overall.

Now how much would that raise in tax?

And what a powerful market corrective tax could be in this case.

And please don’t tell me people will leave: as the professors say, they won’t.

And any employer seeking to diverts payments abroad should be charged a 100% mandatory penalty of tax evaded, just to add to the incentive to comply.