Saturday, 9 February 2008

It's enough to turn you into a class warrior

Comments from Digby Jones on proposed changes to non-dom taxation that is. I've never been much of a fan of Diggers, not least because he never seemed to miss an opportunity to put the boot into the unions. Plus I think he propagated very simplistic messages about what helped create successful businesses. So I really was disappointed to see Gordo appoint him as trade minister.

According to the FT, Diggers has now made some negative comments about proposed changes to non-dom tax status.

He admitted that a lot of people from the City had told him it was a serious issue for the financial services industry.

Lord Jones had been frequently asked about the tax changes on trips to India and the Gulf. He feared they had reduced the attractions of Britain as a destination for skilled people.

“It has caused people to say ‘Does this mean you don’t want us?’,” he said, adding that there was a danger such changes meant the UK would lose its “badge as the place to come and bring your skill and work hard in the developed world“.

“I don’t want to be in the position where one morning we wake up and people are saying ‘Digby: no matter how good you are at doing what you do, the product isn’t as good as it was’.”

His warning follows intensive lobbying by the City, which is concerned that overseas investors and executives will pull out of the UK if Alistair Darling, the chancellor, goes ahead with the crackdown.

This annoys me on both a gut instinct level and a (hopefully) more considered one. The first one is easy - it just really winds me up to hear very rich people threaten to leave the country if we dare to touch their money.

But even if I try to think it through with a cooler head I find myself unconvinced. Are we really, absolutely sure that these people are so valuable to the UK economy that if the leave we will be in trouble? I am very sceptical that the success of a company, let alone an economy, can be attributed to the input of a handful of individuals. To be honest I am more confident that we misattribute success to key individuals when it comes to large organisations.

We should be wary of claims about the loss of expertise. Last year the private equity industry made similar threats to quit the UK and takes its expertise in creating jobs elsewhere. Subsequently a WEF study found that the industry actually has a negative effect on job growth. As such I wonder whether it might actually be worth calling the bluff of those that defend tax avoidance and see what happens.

I'm not naive enough to think that you can just clobber the top end of society without any unintended consequences. I also recognise that our economy is dependent on financial services as a key component. But what we are talking about here is changing the tax paid by probably a few thousand people. All the other tens of thousands who work in various levels of the industry will be unaffected. I just don't buy that it will be that important. I'm sure some people do consider changes to taxation when they decide where they want to live. But I'm sure there are lots of other factors too, and I wonder whether this change would really be enough to make many relocate from London, or choose not to move here in the first place.

Maybe there is an element of scapegoat politics here. There does seem to be a rising tide of resentment at tax avoidance by the very rich that changes to non-dom status appeal to. But who is to blame for the resentment in the first place and does that mean that we shouldn't do anything about it? You do have to wonder whether people like Diggers ever consider that by using the "if you tax rich people they will leave the UK" line they actually exacerbate antagonism. In contrast Nick Ferguson's comments that it seemed wrong that private equity partners paid less tax than their cleaners might actually have done the industry some good by demonstrating that at least some of its senior figures were troubled by their position.

And just because there may be some low politics involved in a crackdown on non-doms I don't think that makes the reform itself any less valid.


Charlie Marks said...

I note the gutter press find it hard, on the one hand to argue against the free movement of labour and on the other for the free movent of capital.

The point is that we are living in a tax haven. Not a for ordinary people, natch. What is striking is that there's an kind of passive acceptance by most people that we'll be the ones paying the most tax and that there's no hope of having a progressive taxation system.

For NuLiebore, Bigby Jones' warning about capital flight is more important than the really-existing capital flight caused by the ability of TNCs to switch to lower-wage economies...

Tom P said...

I agree that there is very little debate over progressive taxation these days. Again a tricky one. I'm instinctively attracted to the idea of introducing a new higher top rate (like the Lib dems old policy of 50% over £100K). But it would be largely symbolic politics. I don't think that there are enough people earning that much to make much tax revenue to justify it on those grounds, especially since many would simply set their accountants on it find ways around.

Charlie Marks said...

You'd be surprised. The efforts of HMRC to get rich folks to cough up the cash is more rewarding than the hassling of benefit claimants on grounds of searching for fraud...

So, progressive taxation would not be that symbolic - and what's more it would fund tax cuts for low and middle income families...

Note the Lib Dems were applauded in the corporate press when they dropped their progressive tax policies in favour of regressive "green" taxes - which won't lessen pollution, but will shift the burden of taxes further down the food chain.

Tom P said...

Hi Charlie

I agree with the point about benefit claimants. Much as I don't like the idea of people ripping off the benefits system (both because it's unfair and because it damages public support for the system). I think it probably takes a great deal of effort to 'police' it for little payback.

On the same line I am quite attracted to that Basic Income idea.

On the tax stuff it's not so much the enforcement I see as the problem, rather I think that there simply aren't that many rich people to make taxing them more a good way to either raise extra revenue or juggle the existing system. How many people actually earn over £100k for example?

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