Hidden amongst the reasons of Ronaldo’s move from Manchester United to Real Madrid is an important element which should have a significant impact on transfers to the Premier League, namely the UK’s coming 50% tax rate on earners of more than £150,000. That, combined with a weaker pound, is making destinations such as Spain more attractive to top footballers looking for a big payday.
Despite the Labour Party assertion that the British economy will recover toward the end of the year, reaction to the tax hike has been strong, and strongly negative, and includes outspoken celebrities such as Andrew Lloyd Webber and Michael Caine.
Lloyd Webber in particular seems somewhat prescient with his concerns:
“I fear the inevitable exodus of the talent that can dig us out of the hole we find ourselves in. It is inevitable, given that other countries are bidding for entrepreneurs. The Government must modify its proposals.” (Andrew Lloyd Webber, dailymail.co.uk)
If Englishmen such as these are finding reasons to look elsewhere for tax residence, what will the effect be on foreign footballers, whose loyalty runs more toward the monetary that club, city or country?
Spain, home of the new galácticos, provides a significant counter-option. Not only is its tax rate lower than the UK’s, it also provides tax discounts for top earning foreign footballers, lowering their tax rate to 23% percent for the first five years they are in the country.
In other words, not only will Ronaldo be earning significantly more at Real Madrid than Manchester United, he will also be paying several million pounds less in taxes. Forget foreign footballers, with math like that, you might start seeing a Brit or two popping up in La Liga. And I don’t mean Steve Finnan at Espanyol.
The clubs and fans will end up paying, as usual
Higher tax rates have been a reality for a while now, however, and English clubs have managed to prosper regardless and attracted major international talent. How has that happened?
In order to counter high taxes, English clubs tend to negotiate their contracts with foreign footballers on net terms, rather than gross terms. In other words, Ronaldo’s contract with Manchester United guarantee a net wage, meaning that the club had to pay him however much it would take for him to receive the same after-tax pay week-by-week, month-by-month, year-by-year. If the tax rates increased, his salary would increase accordingly.
If that continues, it won’t be foreign footballers making the decision to be contracted elsewhere, it will be English clubs turning them away. When the new 50% tax rate takes effect, the salary budgets for all Premier League Clubs will instantly increase. Give the debt level of the Premier League, additional expenses for the same team will become nearly unjustifiable. And in the cases of small clubs such as Wigan, Bolton or recently promoted Burnley, may mean more sales than expected and a limitation on using foreign scouting knowledge to help them compete in the uneven playing field of the Premier League.
It won’t keep the Big Four from being the Big Four, however. So much for taxing the rich to feed the poor. It seems there are no Merry Men left in English football.