If the rich leave the country, we will all miss them

Say goodbye to the non-doms. These are a smallish group of people who live in the UK but consider their domicile to be elsewhere (ie they have an allegiance to another country and are likely to both retire and be buried in that country).

We don’t tax them in quite the same way as we do UK-domiciled people. We give them a choice: they either pay tax on their worldwide income in the UK (as the rest of us do) or they pay an annual fee (£30,000, rising to £90,000, depending on how many years they have been resident in the UK) and then tax only on income or capital earned in the UK or remitted to the UK.

That’s a regime that sounds generous (if you have a lot of capital offshore, there are pretty good tax advantages) but which also brings in a lot of cash for the UK – in 2015 the tax revenue from the 116,000 people in the UK claiming non-dom status added up to a whopping £6.5bn. That’s enough to pay for all the DUP demands with some to spare.

However there is trouble ahead. The UK’s non-doms have been unsettled by the rising costs of their status (the annual fee was only introduced under George Osborne); by the suggestion that there is more to come (a new crackdown to make very long-standing non-doms pay tax on their foreign earnings was supposed to have been in the last Finance Bill); and by the uncertainty surrounding the next moves (the new crackdown was cancelled after the election and it isn’t certain what will happen next).

At the same time other countries are stepping up their attract-the-rich game. Italy has a new regime under which non-doms can pay a flat fee of €100,000 a year and nothing else, for example. It’s pretty attractive looking, so much so that according to the Mail on Sunday, Italy – which introduced a rival non-dom scheme last year – has bagged its first big Brit.

You may think this is fine. If you are exercised about wealth inequality you may figure that the sooner this lot are gone the better. But before you feel too smug it is worth remembering the amount of money we take from our non-doms: their leaving will take away an irritating symbol of wealth inequality but it will make the UK state rather poorer as it does. We will miss the rich when they are gone.

  • C Narbeth

    On the one hand 6.5bn is an awful lot of tax revenue, on the other it isn’t an awful lot more than the 116,000 people x their 30,000 ‘non-dom’ fee.
    Even if 1/3rd of them leave we’ll still get 6.75bn from the remaining 75,000 paying 90k ‘non-dom’ fee even if they shelter ALL of their income, capital gains etc.
    …. and even if the whole lot left, we could much more simply recoup this tax revenue tenfold by introducing a 1% property tax on ALL mansions over 1mm.
    Not only would this raise substantial revenue in a manner which cannot be avoided but it would also place a dampener on the irrational London property market which would ultimately benefit those who want to live and work in the City

  • AlexH

    I think we are sending the wrong messages – “we don’t want the super rich in the UK”. Even if they own properties and spend a few days a year in the UK and are happy to pay £30k for the privilege. It’s not just the non-doms but the army of people that they employee directly and indirectly that will loose out. The long term damage is the message that the UK is sending to anyone that happens to do well – watch it we will make it so uncomfortable for you that an offer to reside in Europe would be more attractive. I am sure Pres. Macron will welcome them all with open arms and suitable tax incentives. Maybe there will be another U turn.

  • Emailonly

    Modern Monetary Theory would suggest that the amount of tax gleaned from these non-doms is irrelevant since taxation is just a means of regulating demand and isn’t needed to raise government spending money.
    Anyway, you’ve covered the super-rich before, and I think you wrote that they don’t spend very much. so aren’t as helpful as they seem.

  • Kevin Hoque

    Monaco is filled with super rich. I wonder if ordinary people there have better lives because of it? Do they have better housing, education, health care, standard of living? They ought to if the arguments in this article are correct…

    Any ideas?

  • Oliver B

    Can anyone point me to any impartial studies on the question of the “trickle down” effect, i.e. the assertion that income and capital gains tax breaks or other financial benefits to large businesses, investors and entrepreneurs stimulate economic growth. Thanks.

    • Mark Bishop

      I recommend reading anything by Nick Hanauer, especially The Gardens of Democracy, and following him on Twitter. An intelligent, thoughtful billionaire who offers a powerful refutation of the trickle-down myth.

      • Sanjay_Cat

        Thanks Mark. It seems to just be about reinvigorating the middle class by redistributing wealth from the top to the middle classes in the context of an organic network. Sounds like a bit like socialism-lite to me. And I don’t consider socialism to be a scare word. What I’m appalled at is that Hanauer and Liu fail to mention when the guillotines will be used to behead ultrarich people. Hopefully that’s in their follow-up work.

        • Mark Bishop

          I look more positively on their work than you; to me the good stuff is not about redistribution but rather fixing the market distortions that enable the very rich to become excessively so then raise up the ladder beneath them, limiting others’ social mobility and, in the US especially (though true to a large degree in the UK too), hollowing out the middle class.

          As for the guillotines (or pitchforks), I see Brexit as a metaphorical example of that. Half the reason the provincial class turned out en masse to vote Leave when it normally doesn’t exercise the franchise in elections is that it saw the smug wealthy metropolitans lined up telling it to back Remain and asked itself if those guys were so scared to leave, perhaps it might be a good idea to do so…

          • Sanjay_Cat

            If promoting social mobility and fixing market distortions to prevent the rich getting so rich and pulling the ladder up behind them isn’t wealth redistribution, I’d like to know what does qualify. Their proposition is a form of light socialism, as I said, but perhaps you find calling it socialism distasteful. Propaganda over the years e.g. the rather lazy canard of associating socialism with the “loony left” Derek Hatton’s republic of Merseyside (or whatever) or austere Stalinist Russia are constructs of conservative interests afraid that they might have a smaller golden goose laying their eggs. In fact, Corbyn et al are not proposing collective farms, empty shelves and gulags. Just the wealthy to pay a bit more in our otherwise advanced system of ultracapitalism.

            The guillotines are important because history tells us that when people are pushed to the brink, wealth redistribution takes place with violence when it doesn’t happen in a controlled way. If things continue as they, the rich will keep getting richer and there will be blood.

            I also think you’ve framed Brexit wrongly as a cultural vote rather than an economic one. I agree that there is provincial v metropolitan tension that colours Brexit, but it is more about economics – when the opportunities and money weren’t coming in for most people, many were looking for things to blame for this. Add in a media with an anti-EU agenda drip-dripping negativity about EU straight bananas, milk lakes and butter mountains, and people seeing the poorest east Europeans come to their towns and do work no-on else would do, that leads to tension which was seen to be eased by the Brexit vote. I think your point about provincials taking their revenge on metropolitan elites who wanted to remain is a less convincing reason.

            • Mark Bishop

              We have different ideas about what constitutes socialism. To me, it means large-scale redistribution of wealth by government, taxing the income and wealth of the rich and giving it to the poor.

              To me, that is an attempt to put a sticking plaster on a failure of the state to create the conditions under which it is very much harder to become extremely wealthy (by taking away the rent-generating capabilities of certain industries and professions) and also very much easier for those at the other end of the distribution to earn enough to be self-reliant (by equipping them with the necessary skills, ensuring they live near areas of employment and removing market distortions such as employers’ ability to import cheap labour from lower-waged economies).

              To me, these measures aren’t socialism because they not only accept the free market but they champion it in a way that crony capitalism and corporatism don’t.

              I see British politics over the past 20 years through this lens. New Labour accepted donations and offered political preferment to bankers and business leaders who became rich at the expense of ‘the little guy’, the deal being that they would pay at least some tax, which government then redistributed to its target voters – benefit claimants, public sector workers and promoters of socially liberal initiatives. The Tory/LibDem Coalition and 2015 Cameron/Osborne government was Blairism with a little fiscal self-control, corporatism rather than socialism lite.

              Red Toryism, the political ideology that I support, shares hardline socialists’ desire to soak the bankers and let the working class rise up, but we seek to achieve this not by huge fiscal transfers but by tackling how markets operate. We see transfers as unsatisfactory for three reasons:

              1. They can be gamed. Rich people avoid taxes, poor people cheat benefits;

              2. They disregard human nature. The rich resent paying high marginal tax rates and the poor resent being dependent on the largesse of others;

              3. They are inefficient. A large state is required to administer them, it can make errors and it can be subject to the whims of politicians, who can be captured by voter or donor interests

              So that’s my manifesto: fix the markets to make the UK a more equal nation, without the need for a huge state or big transfers.