The study (the Truth about Bonuses) by the University’s School of Economics involved subjects either being paid a bonus or fined depending on their performance in certain areas.  The results showed that the joint earnings of employers and workers were almost 19 per cent higher when fines were handed out than when bonuses were paid. However, while employers were better off when fines were introduced, workers earned less than in the scenario without fines.

Alternatives to bonuses

So what does work?  I suspect it depends on who you ask.

Employees (especially those in the, ahem, financial services sector) will probably say cash is king, and when it comes to it, a bonus will do nicely, thank you very much.  Now where is the Ferrari showroom?

Employers will often take a longer term approach to incentives and will often prefer employee share schemes and options.  These have the benefit of being tax efficient and of promoting long term commitment to the business since employees will benefit from future growth.

I’ve yet to come across anyone offering employee fines as an incentive and, if my boss is reading this, I am not sure that it would go down well in practice.

If you would like to discuss employee incentives for your business please contact me (for a discussion of tax), or Emma Cameron in our corporate team.

The Treasury have just now issused the following press release, which we will consider in more detail and comment on in due course.

Financial Secretary to the Treasury announces changes to restricting pensions tax relief

Financial Secretary to the Treasury, Mark Hoban MP, announced today that the annual allowance for tax-privileged pension saving will be reduced from £255,000 to £50,000, and the lifetime allowance will be reduced from £1.8 million to £1.5 million. This will replace the complex proposal legislated for by the last Government in the Finance Act 2010.

This measure will raise £4 billion per annum in steady state and will help reduce the record Budget deficit that this Government inherited. It will be targeted at those who make the most significant pension savings. An annual allowance of £50,000 will affect 100,000 pension savers 80% of those will have incomes over £100,000.

The Government is committed to protecting individuals on low and moderate incomes as far as possible. To protect individuals who exceed the annual allowance due to one-off “spikes” in accrual, the Government will allow individuals to offset this against unused allowance from previous years.

We will also consult on options enabling people to meet tax charges out of their pensions in November.

In order to protect the public finances it is necessary to introduce the reduced annual allowance from April 2011. The Government plans to introduce the reduction in the lifetime allowance from April 2012.

Mark Hoban said:

We have abandoned the previous Government’s complex proposals and developed a solution that will help to tackle the deficit but not hit those on low and moderate incomes. We have taken a tough but fair decision.

The Coalition Government believes that our system is fair, will preserve incentives to save and – compared to the last Government’s approach – will help UK businesses to attract and retain talent.

Getting technical, there are nine consultation / discussion documents which invite views from the public and professions on:

• PAYE reform
• Furnished holiday lettings
• Pensions tax relief
• Associated company rules
• Disclosure of inheritance tax avoidance
• Foreign branch taxation
• Controlled foreign company interim improvements
• Modernisation of investment trust company rules
• National minimum wage regulations

This is supposed to be the start of a new era of openness and transparency.  It is hard, though, to escape the cynicism engendered by 13 years of Mr Brown at the tiller.  Under the last regime, consultations meant less and less as time went by.  It became increasingly clear that they were more of a statement of intent than a genuine request for views. Time will tell how the new Government will act.

Only the papers PAYE and national minimum wage have the potential to be of interest to the public at large (and even then, there is a limited audience).  The other consultations are of more interest to the professions and to business.

Many people will look carefully at the proposed changes to pensions tax, and associated companies which could have a genuine impact on owner managed businesses.  For tax planners, the outcome of the discussions on disclosure of inheritance tax avoidance and foreign branch taxation will be of particular interest.

If you would like to discuss the impact of any of these proposals please contact me on james.odds@mablaw.com or comment below.