Why Hong Kong is not a model for the UK

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I know, I said I would not comment any more on Martin Durkin's appalling documentary on Channel 4 last night, but one, perhaps last, issue has come up. As a commentator has noted on this site:

When Durkin talks of low taxes in Hong Kong he misses the point in any case. The Hong Kong government was financed by leasing land. Hong Kong diverted what otherwise would have been private land rental income into government coffers and from there back into public spending. So it had no need to levy high taxes. It was possible to fund the HK government without low public spending commitments because it, in effect, levied a high Land Value Tax upon those who wished to use its territory. If Hong Kong had merely reduced taxes without taking this action, it would have ended up in the same impoverished state as the other low tax/low spending/low GDP ex-colonies which you listed in your recent excellent graph showing the relationship between GDP and tax.

I regret that I do not share the commentators believe that if a similar land value tax was introduced in the UK that we could enjoy the same benefits. I am quite sure that land value taxes form part of a desirable tax system for the UK, but do not see them as a panacea.

Hong Kong could do what it did for several reasons. None can be replicated in the UK now. They were:

1. At the time that the economic environment Durkin praises was created Hong Kong was not a democracy. It was a British overseas territory. We could do and did do pretty much what we liked: the indifference shown to the ordinary people of Hong Kong was simple indication of colonial policy. The same was true with regard to the policy on land: it was assumed to belong to the British government anyway. The same is not true in this country.

2. Hong Kong in the 1960s,and afterwards, was a major gateway, and a tiny and largely exclusive gateway at that, for import and export out of a significant part of China. The profits that were recorded in Hong Kong did not arise there. They arose on the back of the labour in China. The UK has no similar situation it can exploit, and have no doubt that exploitation is the core of this.

3. In combination this gave Hong Kong two extraordinary assets that it could exploit to raise tax, neither of which can be replicated in the UK. It had an exceptional geographic position,with a tiny land base , attracting a massive rental premium that could be captured by the state. And, in effect, the enormous natural resource of the population of China  that it could exploit through the artificial increase in profits that its rare and limited access allowed  provided the second such  stream of rent to be  taxed.

The truth is that if Durkin is to argue that this model could be replicated in the UK he has to first show why democracy must be abandoned, second he must show that that rule by government diktat is acceptable and thirdly must show what natural resource or natural phenomena we can now exploits that provides taxation revenue opportunities that mean that tax need not be paid by the population of the UK, but  can instead be extracted from an extraordinary rental income stream.

If he can’t  do do these things then his hypothesis fails, entirely.

I think I am on a pretty safe bet that it will.