Why the super-rich love the UK

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Catchfire Catchfire's picture
Why the super-rich love the UK

Hint: it's the taxes, stupid.

Quote:
A few years ago, when I set out to write a novel about contemporary London, my point of departure was to think about who I wanted to be in it. I wanted to have characters who were lucky and unlucky, immigrants and natives, mindful and oblivious, poor and rich – but the question there quickly became, just how rich? London is full of the 1%, the people at the top of the income distribution, whose circumstances are at the moment so much on the agenda for the other 99%. But the thing is that while the 1% are rich by everyone else's standards, they are not rich by the standards that rich people use themselves. To be in the 1%, in income terms, you have to earn – or, as the Socialist Worker has it, "earn" – £150,000 a year. That's a lot, to most people's way of thinking – but not to the way of thinking of the rich. I've asked quite a few people in the world of money, the kind of people who know properly seriously rich people, what counts are being properly, seriously rich. The consensus figure is that you need $100m. At that level, even the seriously rich agree that you are rich. Anyone with that amount of money is obviously way, way past the point where they will never have to think about any of their material needs, ever again.

There are more of these people in the UK than there used to be, and they have more money, too. In 1990, to come in the top 200 of the Sunday Times's annual rich list, you needed £50m. Now you need £430m. Income levels for most social groups have stagnated in the last few decades, but the super-rich have continued to get sharply richer, and to own an ever increasing share of the economic cake. This reverses the trend of the preceding few decades – and by the way, the fact that the process has continued in that direction, even as the economy contracts and average household incomes decline, refutes the whole rationale for the laissez-faire attitude to high incomes. The argument for allowing the rich to grow richer is that it starts a process where everyone else grows richer, too – but this simply hasn't happened. In fact, they're growing richer while everyone else grows poorer. "Economic imbalances and social inequality" were the top global risks cited at the World Economic Forum this year; there were 70 billionaires in Davos, so it's a subject they know something about.

As for what this has got to do with London, the answer is, perhaps too much. The capital of the UK has one of the world's largest concentrations of the super-rich, and the reason for that is that we have chosen to have them here, as a matter of deliberate government policy. The relevant policy is the notorious provision in relation to "domicile", as a definition of an individual's tax status. Every other civilised country in the world taxes its inhabitants on their income and capital: the basic rule is that if you live in a place, you pay its taxes. But it's different in the UK. Here, if you come from overseas, and can prove strong links with overseas, and can prove that you are going to return to overseas, and can therefore establish a "domicile" overseas that is different from your "residency" in the UK – well, in that case, you are treated entirely differently for tax purposes. You pay tax on your income in the UK, like the rest of us; and you can remit capital to the UK; but your overseas income, as long as you keep it overseas, is out of the reach of the Inland Revenue.

What this policy amounts to, in practice, is that the UK has a gigantic sign hanging over it saying, "Rich People! Come and Live Here! You Won't Have to Pay Any Tax!" It is an extraordinary policy for any developed nation, and not one that anyone else has been tempted to adopt. Other countries have low tax rates to attract businesses – in the EU, Ireland and the Netherlands stand out – but the only countries that have anything even vaguely resembling the British policy towards the super-rich are places that are openly accepted as tax havens, such as Monaco and Switzerland. (And even in Switzerland the tax policies vary canton by canton, and are regularly put to the vote.) Tyler Cowen, a respected American economist with a popular blog, Marginal Revolution, describes Britain quite simply as a "residential tax haven". A glance at any list of this country's richest residents will not confirm this fact, because it's impossible to know the private details of individual tax arrangements, but it is striking that of the 12 families and individuals at the top of the Sunday Times rich list, only two are citizens of the UK. The others, clearly, are attracted here by the weather.

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