Fantasy Football hit by the weakness of sterling

Imagine, for a moment, that you are a top European footballer, perhaps from Italy, Spain or Portugal – something like Cristiano Ronaldo but better looking and more modest. Now imagine that two years ago you signed for a top Premiership club, perhaps Chelsea or Manchester United, for a transfer fee of around £25million plus a weekly salary of £100,000 – a reasonable and modest sum, given the quality of your football. When you started to play in the UK the top rate of tax was 40%, so after the first week when you benefitted from the lower tax rates on the first £40,000 or so of your annual pay, you have paid £40,000 income tax per week. But next April the top rate is set to rise to 50%, so your net (or take-home) pay will fall by a further £10,000 per week. Will you have to start watching your spending a bit more carefully?

That would be bad enough, but look at what has happened to the exchange rate as well. As you come from a Eurozone country, you are sending most of your salary home, so have to convert it to Euros first. What has happened to the value of your pay since you signed that contract? Two years ago the exchange rate was around 1.5 euros for every pound sterling, so your weekly after-tax net £60,000 could be converted for 90,000 euros, but now, with the rate at only 1.15, your pounds buy far fewer euros and you have effectively had a pay cut of 21,000 euros a week. Add this to the proposed tax rise, and next April your net income will only buy you 57,500 euros a week, which is a huge difference from the expectations you might have had when you signed that contract and shook hands with the manager in front of the world’s press.

Now imagine that you are the manager of an English Premiership club, and consider the difficulties you face if you want to bolster your squad by signing European players this summer. Deloitte have just released a report saying that giving a European player a net annual salary of 3m euros (£2.6m) would cost an English club 6.8m euros. But a Spanish club needs only pay 4m euros to deliver the same net salary, partly because of the exchange rate but also because there is a non-residents’ tax rate in Spain of only 24%. The UK figure is also higher than clubs in France (6.7m euros), Italy (5.7m euros) and Germany (5.4m euros) would have to pay, according to the Deloitte calculations.

No wonder Ronaldo prefers to play in Madrid rather than Manchester. In terms of the international competitiveness for UK football businesses, the combination of rising tax rates and falling exchange rates could put them at a real disadvantage.