PW predicts no cuts in relief for PRPs

Cuts in tax relief on profit related pay schemes would be politically devastating for the Government, claims Price Waterhouse.

PW’s PRP experts forecast that the Chancellor is unlikely to target tax relief on schemes even though it could save up to u1.5bn a year – equivalent to 1p off income tax.

PW’s head of reward consulting Paul Wigham said: ‘The Government would probably prefer to have the ability to take 1p off income tax than to operate tax relief for PRP, and the noises coming from the Treasury would seem to confirm this.

Wigham warned: ‘With more than three million employees in schemes, removing relief on PRPs would dwarf last year’s controversy after the withdrawal of tax relief on executive share option schemes.’

The firm has suggested key reforms, designed to stamp out abuses of the PRP system, make it more equitable and secure its future. The Inland Revenue should have powers to deregister schemes if there is evidence of profit manipulation, while PW’s PRP experts also want the Revenue to devote more resources to banning schemes where unacceptable statements guaranteeing pay, regardless of profit, are issued.

PW also favours the scheme being introduced to more public sector areas.

PRP scheme members currently enjoy up to u4,000 tax-free pay a year.

The estimated cost of this perk soared 50% this year. In 1989, a year after the scheme was introduced, the cost was just #10m.