The Sunday Times has published a report which they have apparently prepared with Grant Thornton, chartered accountants, on the abuse of the UK's tax laws by the billionaires who live here. The combination of a Murdoch paper and a tax practice headed by Mike Warburton, an apologist for tax avoidance if ever there was one, working together to do such a thing seems so unlikely that I can only take it as an encouraging sign of the times that they might have even thought of taking on such a task. Maybe there is light at the end of this tunnel!
What is as interesting is what they have to say. Take this title for starters:
Britain: world's first onshore tax haven. Billionaires pay out tiny fraction of wealth
I'll ignore the fact that the claim is wrong; Britain is not the world's first onshore tax haven, but I accept the underlying message that it is definitely one of the most popular for the world's mega-rich. And the claim that billionaires are only paying a fraction of what is due is true. According to data from Grant Thornton (and I'd love to know how they calculated this stuff when the tax returns to which they should have referred are not in the public domain - so I hope they have got good lawyers to hand) the 54 identified billionaires living in the UK:
paid income tax totalling just £14.7m on their £126 billion combined fortunes, and only a handful paid any capital gains tax. At least 32 of the individual billionaires or family groupings are calculated not to have paid any personal taxes on their fortunes, although they are liable for VAT and council tax.
They went on to say:
The analysis concluded that, in total, the 54 billionaires paid an estimated tax bill totalling £74.5m. James Dyson, the inventor worth £1,050m, contributed the bulk of the income tax paid by the billionaires £9m of the £14.7m paid by all 54.
I have to say that at this point the credibility of the research becomes a little dubious. I'm willing (I think) to believe that James Dyson pays the stated tax. That means the remainder (all worth more than £1 billion a year, and all likely based on normal rates of return for high net worth individuals referred to in published surveys to be enjoying rates of return on average of in excess of 7% per annum on their capital, and so earning £75 million a year each as a minimum, or £3,975 million a year between them, pay just £5.7 million of tax on this between them. That's an effective income tax rate of 0.14%. If their worth is really £125 billion (after knocking out Dyson) then the income would be £8,750 million and that tax rate 0.06%, but let's be generous and go for the higher figure of 0.14%. Read that carefully. The number is right. That's not 14%, or 1.4%. That's 0.14% income tax paid.
I hope Grant Thornton and the Sunday Times have this right, although I have to say the data they publish on other taxes paid makes it a little hard to believe. As they note, this lot paid little or no capital gains tax so all they did pay was VAT and council tax. Well, Council Tax has a ceiling of at most a few thousand a year (quite absurdly) and you can only pay VAT in the UK if you spend here. Normally you spend out of income. What this report implies is that this group therefore pay about £60 million in VAT, implying spending of more than £400 million a year by this group. This is pretty good going when the implication of their tax bill is that they have just £14 million or so of UK taxable income between them. The implication has to be that all this spending (if it's real) comes out of capital sums remitted from overseas.
Candidly, that implies someone somewhere is doing a lot of disguising of capital to make sure it slips into the UK untaxed to support extravagant lifestyles. And what does that really mean? Well, not I suggest what Mike Warburton says, which was that:
the overall impact was positive for the British economy because although the billionaires paid low rates of tax, they were important net contributors.
There are three reasons why this is obviously wrong. The first is that there's no evidence of this 'positive contribution'. Indeed, the impact of wealth of this sort is wholly negative in London and the South East, where it is concentrated, in dragging up house and other prices beyond the reach of ordinary people. Secondly, Mike cannot prove his claim so it is simply wishful thinking, straightforward politics or an apology to his client base for having been involved in this process. Third, it's universally acknowledged by all serious researchers, even if not by David Cameron and Tony Blair, that disparities in wealth matter a great deal in perceptions of well being which are as significant in defining poverty as absolute levels of hardship: a point Polly Toynbee makes often but which the Tories have ignored, so far. In other words, these people harm the UK economy by increasing disparity in it, do not pay their way at all, and create the impression that paying tax is an option they can choose not to take. This undermines the democratic process and the rule of law. And that cannot possibly justify the Sunday Times' conclusion that:
However, the withdrawal of tax-favoured status to the non-domicile community would have a major impact on the attractiveness of London as a place to work and could damage London's status as one of the financial centres of the world.
As they offer no evidence to support this claim I consider this claim entirely bogus. It's oft repeated, and entirely without foundation. In which case the answer is simple. Either prove this and that no social harm arises (despite all the current evidence to the contrary), and if that's not possible the domicile laws have to go and the residence laws have to be revised. To read more, read my submission to the Treasury on the subject.
In the meantime, would Mike Warburton like to subject his data to a little more scrutiny? It has holes in it, but I'll buy the fact that the billionaires pay just 0.14% income tax until evidence to the contrary is available. Which is a sad fact with which to start the week in which Gordon Brown will deliver his pre-budget report.
Finally, for those who will want to comment, I add the following clarifications:
1) I am aware that some of these people pay taxes in their companies. But the rate is not always very high. Mittal, for example, pays about 11% on average. And, as the Sunday Times notes, many are masters of suing tax havens to achieve this goal;
2) I have no problems with wealth. I do have problems with wealth without responsibility. Paying tax is a responsibility of wealth.