Chancellor of the Exchequer Alistair Darling has confirmed to the House of Commons in his pre-budget report that he will be raising income tax for those earning more than £150,000 to 45 pence in the pound, a rate that will hit many CIOs.

The weekend’s news was dominated by a series of leaks to national news outlets that the Labour government was proposing an increase in the tax to high earners.

Darling said the new tax increase, which comes into force in 2011, will “only affect the top one per cent of income earners in the UK”. Speaking to a rowdy chamber in the Commons, Darling said of the national economy, “I am forecasting output will fall in the first two quarters of next year.”

“I am pretty disappointed,” said Albert Ellis, chief executive officer of CIO recruitment specialists Harvey Nash. Ellis said Darling’s tax policy will reduce the annual take home of CIOs by five per cent. “Bonuses will be affected, CIO salaries start at £150,000 and many are on a delivery bonus,” he said. The majority of CIO roles that the London based recruitment firm fill have starting salaries of £150,000 he confirmed. Ellis described the new policy as a “big step, people can accept small movements, it will be a shock”.

The competitiveness of Britain as a workplace and its lower than average taxes when compared to neighbouring members of the European Union means many CIOs will remain here rather than seeking new opportunities, according to Ellis.

The Chancellor also cut VAT from 17.5 per cent to 15 per cent from Monday December 1, 2008 to the end of next year, when it will return to 17.5 per cent. “This temporary reduction is giving back £12.5bn to consumers and it will make goods and services cheaper,” he said, urging businesses to pass on the reduction to consumers to kick start the economy. At the same time, Darling increased fuel duty to make up for the VAT shortfall.

Ellis said this change in VAT policy was a great opportunity for CIOs to invest in hardware and software. Some commentators are calling for a VAT cut of 2.5 per cent.

Related articles:

Brown promises technology infrastructure to aid economy

CBI downgrades UK growth but is positive