I was on the Politics Show on BBC1 yesterday countering arguments that a combination of the 50% income tax rate and the changes to the domicile rule will undermine the competitiveness of the City of London.
This is not exactly hard to do. Let’s be honest — any so called entrepreneur who a) thinks tax is sufficient reason to change business location and b) thinks paying a fair contribution back to society for the opportunity to make considerable profit is not an entrepreneur at all. They’re either a) a wealth preserver — which is an entirely different mindset and from a completely different stage of the wealth cycle or b) so lacking in empathy that they have no chance of understanding the need of customers and so is almost bound to fail in business. I made those points, I think. Of course — individual bankers can think these things — but then they are neither entrepreneurs or in business: nor is there evidence they add value to society so that is another issue, and I did not have time to make that point.
But I also said the domicile rule was racist and blatantly discriminatory, partly in response to Digby Jones who supported it, he said as a matter of principle. I have been challenged since doing the broadcast to say why it is racist. I did so because I am entirely convinced that the domicile rule contravenes the UK Race Relations Act as amended in 2003 because it blatantly discriminates on the grounds of national origin — and under that Act this is illegal. Using the criteria that something that contravenes the Race Relations Act is racist I think my use of language correct. My full argument is here.
But whichever way you look at it Digby Jones is wrong. Not paying tax is not a principle — it is an abuse.
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For once I agree with you Richard, although I wouldn’t go so far as to say that the domicile rules are racist. As I understand it their original purpose was to exempt colonial investors and businessmen from UK taxation on their overseas income when they came back to the UK for a break, but that was in the days when a round trip voyage could take several months and there was often a need to escape diseases, uprisings and other local conditions. We live in a different age, and this provision is irrelevant to modern life.
🙄 “Not paying tax is not a principle — it is an abuse”
Depends on the tax surely? If the tax is unjust, where is the abuse. Most of our current battery of taxes has the effect of battering those who successfully engage in legal economic activity and pay for the exchange of goods and services in coin of the realm. It is nothing more than a structure of fines and penalties for providing that which people want. That is an abuse too.
Hi,
I caught the Politics Show and it was fantastic to hear you. Thought you made those points very well. keep on!
Richard,
Not paying tax is not a principle — it is an abuse.
More like a truly wonderful dream….
Georges
Dreams eh…
Nobody paying taxes, Father Christmas, the tooth fairy, etc etc
Richard, let me present you our case and ask you what you think.
We have set up a hedge fund business in London with global investment activities. The founders are Europeans, most of the front-office is either European or American, plus one Brit. We are increasing our volume of activities with Asia and so are looking to hire one or more professionals from the area. Most of the back- and middle- office is British.
Now everyone, doms and non-doms pays a reasonable of income tax, somewhere in the region of $5 million, which will go up next year. We also all live here and pay VAT on our spending.
In total, we have created about 30 direct jobs here, and a large amount of indirect jobs (just think of all the school teachers required). This was achieved without any government support. In fact, since all of the front-office staff was educated in the U.S. or in Europe, our business has never received any investment from this country.
Between the direct and indirect taxation, the job creations and the contribution to London as a major global financial center, I would say we are contributing more than our fair share to this country. Most of us feel connected to London, and despite the obvious shortcomings in terms of quality of life, find it a convenient place to live.
In return for this we are asking that the proprietary returns on our investment activities, which consist of non-UK investments using funds raised from non-UK institutions, be exempted from the UK taxation net. We are also asking that the assets we have accumulated for many years before settling in London remain exempt. This is what the non-domicile regime allowed us to do (and to some extent fortunately still does).
We are currently being literally harassed by various service providers offering us to relocate to Switzerland, and regularly approached by Swiss officials or their representatives discussing attractive tax deals, with income tax rates of 20% or less and no tax on offshore performance fees. Geneva and Zurich are among the very few places able to compete with London on non-work intangibles, such as a high number of international schools. The Brown Administration’s policies, and frankly interventions like yours, push us to have a very hard look at this option.
I would encourage you to think hard (just like we do) about the consequences of relocation. Do London and the UK really want to see us go, with our $5 million of income tax, probably the same amount in VAT and all the derivative jobs and tax revenues we create. Do you really want to see us lay-off our 20 local middle- and back-office staff and see our kids’ schools shutting down?
Maybe the answer is yes, in which case our decision and yours will be easy. But I would suggest you spare a thought for those who will be the real losers in this outcome.
Any thoughts welcome.
eg