So just whose pips will the Chancellor squeeze?

For 30 years the ranks of the rich have swollen while politicians turned their fire on other targets. Andy McSmith reports on the prosperous tribes for whom the taxman cometh
Click to follow

The rich are always with us. Sometimes we admire them and aspire to live like them. At other times, they annoy the hell out of us because we are having a terrible time and they are not. Just now, the rich are not much loved, especially those who made a fortune from sub-prime mortgages and other dodgy investments that have plunged the world into recession.

In Britain, for the past 30 years, the rich minority have known nothing but kindness and tolerance from the majority of the population – until this week's Budget, when Alistair Darling announced that they are going to have to pay more towards getting us out of the economic mess we are in. No Chancellor has increased the top rate of tax since Denis Healey in the 1970s. Healey never threatened to "squeeze the rich until the pips squeak", as he is so often misquoted, but in 1973, he forecast that a new top tax rate he was proposing would cause "howls of anguish from the 80,000 people who are rich enough to pay".

Now there are more rich people than there were 36 years ago, and proportionately they are a lot richer. The number who may feel like howling when Alistair Darling's top tax rate hits their salaries in April 2010 is around 330,000, four times as many as Healey had in his sights. Since the 1980s, the top 10 per cent – which now means people on incomes above £50,000 – have been getting richer relative to the other 90 per cent, and within that group there is the top 2 per cent whose earnings have soared even further ahead.

For a long time no one seemed to mind, least of all the Labour Government, but now, as Sir Fred Goodwin's pension arrangements have made him a pantomime villain, the rich are beginning to feel that other people do not like them. One young hedge-fund operator who was asked if he or one of his colleagues would talk publicly about his wealth replied: "No one will talk because it makes them a target of envy and hatred."

Stephen Quest, a tax partner at the accountants firm Grant Thornton, is one of the 2 per cent who will be hit by the Budget. Reluctantly, he can see why it is good short-term politics, though he believes that it is bad long-term economic management. "Start with the psychology," he said. "We have had a long period when the top tax rate was 40p, and capital gains tax began at 10 per cent, and that was a genuine environment for business to grow. Now the psychology has shifted. We are no longer the country we were.

"I can totally understand why it's an attractive political move, but if you switch off those people who build businesses and have got the drive, then there are not going to be jobs for everyone else."

The rich do not all make their money in the same way. Basically, they can be divided into three tribes. The largest by far is made up of those who run businesses, and the accountants, lawyers, stockbrokers, fund managers and others who provide special services that businesses need. Income Data Services, an independent research organisation, has calculated that the average pay packet for a chief executive of one of the top 100 companies is around £1.6m a year, while the average director gets about £912,000.

For the next 250 companies, the average reward is £843,000 for a chief executive, and £452,000 for other directors. There are then several hundred smaller companies whose chief executives are on salaries above £150,000.

The lawyers and accountants who service them are often just as well-off. The country's highest paid solicitor is Nigel Boardman, a celebrated dealmaker who represents 12 of the FTSE 100 companies, and whose earnings are reckoned to be more than £2.3m a year. One or two of the top tax barristers are in the same bracket. And of course, the bankers who loaned them money, the financiers who traded in their shares, and the commodity brokers who handled the raw materials they need have also had decades of almost uninterrupted prosperity.

Steve Tatton, who edits the IDS Executive Compensation Review, is sceptical of suggestions that these people will leave the country in droves if they are overtaxed. "I'm not sure where they could go," he said. "Some could find a job, but UK accountancy practices are different from other countries, and law is also very UK-specific. The global market for these services doesn't exist."

Another tribe of the rich, which we hear more about although it is not so large, is the people who make money by being famous, or by handling the affairs of the famous. This takes in footballers such as the Chelsea midfielder, Frank Lampard, whose weekly wage of £140,000 would be almost enough to qualify for the 50p tax rate if he was paid it for a year. Then there is Jonathan Ross, with his three-year deal worth £18m, and JK Rowling, whose imagination has made her Britain's richest woman. And there are the rock stars, and film stars and comedians, and TV presenters, and celebrities of various sorts. There are also the television executives, the agents, and others who take their share of the huge sums that can be earned from entertaining the nation.

The director-general of the BBC Mark Thompson is paid £800,000. He would get more if he was in commercial television.

However, not everyone who is famous is rich. Michael Winner rang his accountant after the Budget to find out if the new tax rates would affect him. "Not a chance," was his accountant's reply. Don't worry, dear, you're not rich enough.

The other rich tribe, smaller still but treated with huge suspicion by the public, consists of those who draw big salaries from the public purse. This does not include MPs, for all the accusations of greed hurled at them. Apart from Gordon Brown, whose salary is £194,250, the only politicians caught in the new high tax bracket are those with lucrative outside interests such as George Galloway and William Hague. In semi-retirement, Tony Blair has also joined the seriously rich, but Alistair Darling need have no personal worries about the 50p tax rate he has introduced, because his cabinet minister's salary is under the parapet, at £141,866 – and anyway he might not be receiving it for much longer.

The Taxpayers' Alliance carried out research last year and uncovered 387 people working in the public sector on salaries of £150,000 or more. Top of the list was Ian Croucher of Network Rail, who is paid £1.244m. The chief executives of the biggest local authorities, such as Kent County Council, the most senior civil servants such as the Cabinet Secretary or the Permanent Secretary at the Treasury, and the heads of major quangos such as the Olympic Delivery Authority or the Financial Services Authority, and more than 70 senior executives of NHS trusts are in the same league. So are the best paid NHS doctors and consultants.

As Mr Darling ended his Budget speech, the commentators declared that his decision to tax the rich meant the end of New Labour. This is overstating the case. Mr Darling was a cabinet minister when Peter Mandelson declared that the Government was "relaxed about people getting filthy rich", and Lord Mandelson is a cabinet minister now, and had a hand in the Budget. The faces are the same, and so is that old determination to stay in power as long as they can. What is different is that there might be votes in squeezing the rich once more.


Kate Moss

The current face of Yves Saint Laurent earned £5.1m last year from her portfolio of contracts including designing clothes for Top Shop. Her 2010/2011 tax bill will be £2.57m. Total increase: £506,590

Sir Stuart Rose

Chairman and chief executive of Marks and Spencer. He earned £1.375m last year. His tax bill will be £665,020 next year. Total increase: £125,090

Christine Gilbert

Head of Ofsted. Earns £210,000, some £103,000 more than her husband, employment minister Tony McNulty. Tax bill next year will be £82,520. Total increase: £8,590

Marjorie Scardino

Chief executive of Pearson, which publishes the Financial Times. Was paid gross salary of £2.1m last year and 2010/2011 tax bill will be £1.03m. Total increase: £197,590

Wayne Rooney

The Manchester United striker earns £90,000 a week and £2.756m from endorsements and image rights. His tax bill on his basic salary next year will be £2.317m. Total increase: £455,590

Tax estimates by PriceWaterhouseCoopers