Over on my blog, I write a lot about tax on education, which is close to home – I’ll be clobbered for tens of thousands of pounds if we have to pay VAT on the kids’ school fees. If we don’t, and start getting school for free paid for by the taxpayer, then the silver lining will be the lifetime saving of hundreds of thousands pounds. Mrs Chips or I (or both of us) gets the opportunity to quit or go part-time, and reduce our lifetime tax contribution by hundreds of thousands of pounds.
Today I want to write about the tax on non-doms. Unlike the tax on education, it only affects me indirectly. Like the tax on education, it’s a terrible idea. I’m going to explain why it’s a terrible idea, why I care so much, and what the so-called Conservative Party should do about it. If you need a primer on non-doms, I can’t do better than this article at the Chartered Institute of Taxation.
The Laffer Curve
Both the tax on education and the plan to remove non-dom status brings into play the Laffer Curve, which is one of the simplest ideas in economics. The more you tax an activity, the more likely people are to avoid the tax by: 1) reducing or stopping the activity; 2) hiding it in the black economy; or 3) moving the activity abroad. The net gains from increasing the rate include the losses on reduced activity. There is some ‘peak revenue’ tax rate – beyond that point, the losses exceed the gains so increasing the rate means less revenue.
A few nuances:
- We don’t just care about maximising tax revenue, we also care about the impact on the private sector. For any useful activity like working, investing or educating children, the goal for society is not ‘peak revenue’ for the Government, but balancing the societal cost (reducing useful activity) with the societal benefit (whatever Really Good Idea the tax revenue pays for). The optimal point is therefore some lower rate of taxation than ‘peak revenue’.
- The claim is seldom that “tax cuts pay for themselves”. The general claim is that tax cuts do not cost as much as a narrow analysis indicates, and in reverse, tax hikes do not generate as much as you might think. That said, the famous 45p or 50p top rate of income tax (which, lest-we-forget, is complemented by 2% employee NI and 13.8% employee NI) was said by the IFS and OBR to be “strolling across the summit of the Laffer Curve”.
- Of most relevance to non-doms is that economic actors and their activity are not created equal. Some people have greater capability than others to change their behaviour. If you have three passports, for example, you have easy options to move overseas. If you’re on a higher income, it’s easy to work less and still get by – most simply, you can just switch cheaper forms of leisure and consumption for more expensive ones. If you’re paying for private school, there’s a
freetaxpayer-funded place theoretically available at much less stress than trying to earn fees from after-tax income.
The fiscal impact of ending non-dom status
Non-domiciled U.K. residents don’t pay tax on their income from their holdings in (say) Malaysia unless they bring that income into the U.K. That’s the bone of contention for the Labour party, which has been eyeing up that Malaysian shoe factory for years. Over the last couple of weeks, it’s been rumoured that the so-called Conservative Party is following them down the same rabbit hole.
But the Laffer Curve will apply as described here. Non-doms are by definition highly-mobile – if they don’t like what this country offers them, they’ll take steps to change things. And if they do, it hurts, because in all the hullabaloo we forget that they pay U.K. tax on their U.K. labour and investment income. According to the Chartered Institute of Taxation, non-doms paid £8.5bn in payroll and capital gains taxes in 2022 – £120k each – which makes them pretty useful to the Exchequer. Further, they pay a charge of £30-60k a year to maintain their non-dom status (around £2bn total). And finally they do pay tax on their global income if ever they bring it into the U.K. or if it enters a U.K. bank account.
I’m pretty confident the bean-counters at the Treasury are capable of taking some of those effects into consideration. They’ll be weighing up:
- The benefits of taxing £10.9bn of offshore earnings
- Against the loss of the non-dom charge which presumably won’t exist, plus the loss of onshore taxation if non-doms leave
I’m less confident they will think of:
- The loss of U.K. value-creation by non-doms’ labour and investment activity. As noted above, we care about this as well as the tax they do, or don’t, pay. If Bob’s paying £120k associated with onshore activity, that hints at a ton of related customers, colleagues, employers and employees all paying related taxes, which disappear if Bob heads to the Cayman Islands.
- The ability of non-doms to restructure their overseas holdings: if Bob doesn’t physically move himself to the Cayman Islands, he might suddenly realise he should move his Malaysian shoe factory to the Cayman Islands for tax purposes. I’m no expert, but I think that’s what people do.
I don’t have a crystal ball, but I can see these latter two effects wiping out the expected revenue.
The moral case
Money aside, it’s rather boring that all our politicians’ take on tax is “if we can tax it, we should”. We’re desperately short of a spirited moral defence of low taxation. Here’s a couple of thoughts:
- Two of the more robust arguments for progressive ‘taxing the rich’ are: 1) they benefit disproportionately from property rights; 2) their economic activities accumulate resources whose supply is inelastic, such as housing, which harm opportunities for others. Obviously, those claims have zero validity as regards Bob’s Malaysian shoe factory or the profits from it as long as they stay offshore. British society at large has no conceivable claim on value generated in Malaysia.
- If we’re concerned that our Government doesn’t always spend money well (to put it mildly), we should welcome tax competition. A tax is the price a Government charges for a person or firm to reside, and if people are able to choose it forces governments to compete to provide value. If rich people spend or invest their money, and can choose where to do it, we should be delighted they do it over here.
What the U.K. Government should do
- First, just make the U.K. an attractive place to invest – for Brits and foreigners, resident and non-resident alike. That’s going to make a hundred times more difference than piffling around with non-doms.
- If we were clever (just imagine if we were clever), we’d note that not all non-doms are created equal. We’d make non-dom status conditional on some measure of economic value-added, such as evidence of inward investment or volume of direct tax contribution. We wouldn’t just let people buy up Chelsea in order to qualify for a tax haven.
- Then we’d allow everyone, including home-grown Brits, to purchase that status. Think of that: once you’re paying (say) 10 times the average tax contribution, you can invest offshore to your heart’s content, then we’ll only tax you on it when you bring home the bacon. What an incentive for talent and investment to move here; what a recognition of the importance of value creation; what a way to export soft power as the home of outbound investment for the world.
I’m sure it’ll catch on, what with the loud pro-prosperity voices echoing the corridors of Whitehall.
Mr. Chips is a pseudonym for an employee of a private school. He writes on Substack.
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So far mostly Ukraine interrupting supplies. If only the Germans had another pipeline to increase the capacity via a secure route, such as, say, under the Baltic…..
Germany is on an implosive self-destruct path – self loathing for being German appears to have finally driven them over the edge.
Their best option would be to hand the country over as an un-named ‘territory’ to be exploited by the CIA and the Pentagon as they see fit and just leave it at that.
“Finis Germania’ ,as a German Philosopher, Rolf Peter Sieferle reluctantly concluded just a couple of years ago. is the result of enduring guilt and self-loathing of te very idea of German nation following the Holocaust The composition of the current wokist, feminist, greenist Leftist “Government” “would have been a bad political joke just 20 years ago! How ironic that they are backing Ukraine Azov militia, who wave Nazi flags, wear their emblems and advocate and practice “ethnic cleansing” of Russian speakers !
It looks like they have been ‘elected’ to wrap everything up, sell off the stock and close the shop to both ‘save the planet’ and help Ukraine destroy Russia for the CIA..
Can’t understand what the FDP is doing mixing with such bizarre company- anything for a sniff of power I suppose.
Th AFD is the only party at all interested in retaining and saving “Germany” but of course they are branded ‘Extreme Right’ by the Globalists ( in fact more mainstream old CDU before Merkel) ‘cancelled’ abused, assaulted and ignored by the “virtuous” Leftist Wokist, Globalists -like Merkel – and their ‘on message’ media who run the ‘country’ whatever it says on the ‘party’ ticket .
No way is a dangerous US proxy war with Russia designed to destroy the country , backing a Ukraine victory and stirring up the Poles to occupy Lvov, sending old tanks in to provoke the Russians and cutting the Nordstream pipeline nose to spite the country’s energy needs face just to please the EU, Nato and the Pentagon in Germany’s interests.
You’re making a silly mistake in assuming that the German government is running the show in Germany.
As usual the industry bosses and billionaires are. That also explains all the paradoxical behaviors of political parties acting directly against their own voters’ expectations. And while the average German is stupid, cowardly, brainwashed, envious and quite eager to be whipped on command because of all this, the people at the top (and again, I don’t mean the puppet politicians) are in fact quite clever. This is why Germany is the richest country in Europe – a smart shadow elite with a mass of dumb, obedient worker ants.
It’s arguable whether the elites are protecting “German” interests as such, but they are certainly protecting their own interests and not believing any of the lies that they pump out on a daily basis through media. Just like the US they understand that Germany needs to export their problems to even stupider and more US-subservient countries (e.g. Poland), which will in fact be arranged one way or another to keep the harm away from Germany.
Don’t really know why you have attracted so many down votes. Germany is a mercantile society/economy. Its not at all ‘social democratic’ that people label it. Its elite are in charge and follow their own path. However they are making quite a ‘horlicks’ of their energy policy.
i am not ‘making a silly mistake’ – it is blatantly obvious that the German Government is running nothing in Germany – that in fact was the point I was making, which sadly you seem to have missed
Someone repeating CDU slogans from the 1990, eg Deutschland ist kein Einwanderungsland! (Germany is not a country people are supposed to immigrate to!) or Asylproblem lösen! (Solve the asylum-seeker problem!) in the Germany of today would certainly called a right-wing extremist bordering a domestic terrorist. But the AfD is no better. These are the people who keep harping on about how small, void of resources and insignificant Germany is and how necessary it would be to remain on a close, friendly footing with our BIG and IMPRESSIVE neighbours, ie, Russia. I don’t care for being sold to Putin instead of having been sold Biden.
Putin doesn’t want you.
A pretty stupid remark in the given context, as I was writing about political groups in Germany seeking a closer collaboration with Russia aka pro-active self-subjugation to Russian interests. These exist in the AfD and also, in the former GDR state party (most recent name Die Linke [The Left] — ironically, link and linken are a German adjective and verb describing the activities of con men ).
The prospect of German- Russian co-operation or worse an “entente” has terrified the Pentagon since the Ribbentrop-Molotov pact of 1939.
That was an agreement among equals who both wanted to get rid of Poland. That’s not what the current crop of German russophiles envision. They’re more thinking of a GDR-style situation, Germany becoming a Russian satellite state instead of an American one, or at least one that’s no longer allied to USA but still permantently blocked from having a foreign policy of its own, like Austria.
For a practical example of that, the Germany government has somewhat recently announced that they would put more resoures/ money into the military in future instead of being committed to remain below the NATO-agreed level of defence spending. Since then Sahra Wagenknecht (from Die Linke) has been trying to convince German people that this shouldn’t be done and that (ideally) the German state shouldn’t have any armed forces because We obviously cannot fight a war against nuclear armed Russia!
IMO, that’s clear case of With friends like that, we really don’t need enemies.
Ahhh good old solidarity
Sounds like the centrally planned, technocratic world of the Great Reset.
They’ll be drooling in Davos.
In fact Sunday week… Virefirer…is the next Davostokracy bean fest event – starts 22-26 May. Where our global overlord elite get to mingle and they’ll be in self-congratulatory pat themselves all on the back mode for having done so well with their Build Back Better agenda since 2020. /sarc
Bill of course will be there bragging about the looming next pandemic…
But yes, as we all know us 99% plebs are far too carbon based fossil fuel greedy….so they and GloboCap are openly trying to destroy the petroleum market for their own purposes and agenda.
They will too all fly in to Switzerland on PJs while bleating to us…on and on about man-made climate change – that perennial stick to beat us with – plus the deadly threats of biowarfare and terrorism as their justifications for a massive expansion of the digital matrix surveillance state and their social control over all things, but especially money as we shift to CBDCs.
Meanwhile they are actively working to make oil and gas prices so volatile as to the point of destroying investment in the industry. With Russia’s massive natural resource asset piles and Emperor Puta’s sovereigntist-minded stance tis why he has to go, and yes they’ll throw bi$$ions at it to make it so. This isn’t a war with a diplomatic solution.
Once a WEF approved Puta replacement is installed working together, restoring trust, the usual suspect G7 aligned global collective O&G corps will move in to savour the spoils.
No mater how many of us, ukes and/or ruskies die in the process, when come the 2022 winter many will simply freeze and starve. Its the new normal folks.
https://tomluongo.me/2022/05/12/real-reason-behind-eu-embargo-russia-oil/
Thank you for that link.
What is clear to any serious observer of EU politics is that they are not interested in what their people have to say or want.
Luongo nails it here. How many governments of any description are interested in anything “their people have to say or want”. Their interest in polls is only that of helping them decide what stories to tell them.
Even the pretence of democratic government is disappearing. I liked to remind people that politicians are our paid employees, and they should behave accordingly – not like our lords and masters. I no longer bother. It would make me sound far too old-fashioned.
Theirs is an agenda which will brook no opposition, even if it means destroying its own economy to bring a rival to its knees. (Luongo)
This certainly appears to be true of the US and the EU. Others, more cravenly, are principally concerned with displaying their servility to their masters (like the US and the EU).
The sin of the Russians (it’s not only Putin we’re talking about here) is that they will not allow their country to be laid waste again.
It was devastated in the Second World War, with a loss of life that was far worse than decimation; and devastated in the 1990s, as it was made a stomping ground to be plundered. That last devastation also cost millions of lives.
The Russians know what an existential crisis is. They will not be brought to their knees again.
Looking at the age of those in charge, more like dribbling!
Funny you should say that:
“These people are destroying Germany….Demilitarisation is what Russia is doing in Ukraine. Denazification is what Russia is doing in Ukraine. What Ursula von der Leyen, the EU and the United States is doing to Germany is deindustrialisation.”
.…..
“The Germany we will see coming out of this will be a completely different country. It will be a country which, to be straightforward about it, will fulfill the WEF’s dreams.”
https://youtu.be/__nkvIluFMM
A harsh lesson in the consequences of letting fanatics get into power in your country, whether they are green nutters, socialist nutters or woke globalist Russia-haters (but I repeat myself).
And Putin is a socialist
Nah. Don’t be silly.
Everything Von der Leyen touches turns to dust – look at the Bundeswehr!
In some circles it’s believed putting and end to the technocratic world of the great reset is just one of Putin’s objectives when intervening in Ukraine.
‘sounds like the centrally planned,technocratic world of Great Britain’
Does that work for you Stewart?
What’s the old saying?
“Play stupid games…’
They will be introducing a 10 year plan for tractor production next.
Some very strange comments here
‘A harsh lesson in the consequences of letting fanatics get into power in your country…’
Indeed:
‘Three Russian prisoners of war accused of targeting or murdering civilians, and a soldier who allegedly killed a man before raping his wife, are set to be in the dock in the first war crimes trials of the Ukraine conflict, the Ukrainian prosecutor general has revealed.
More than 10,700 crimes have been registered since the war began by the office of Ukraine’s prosecutor general.’
The Guardian 11 May 22
https://www.theguardian.com/commentisfree/2014/may/13/ukraine-us-war-russia-john-pilger
Pilgerism:
Conducting journalism in a manner supposedly characteristic of John Pilger, or, more specifically, as presenting information in a sensationalist manner to support a foregone conclusion; using emotive language to make a false political point; treating a subject emotionally with generous disregard for inconvenient detail; or making a pompous judgement on wrong premises.
Why did the Guardian publish his article? Emotive language or not, he is spot on.
You can’t have it both ways – referencing a G article to support your one-eyed and simplistic interpretation, but deriding other (older) articles that clearly describe the reality!
Checkmate.
More like 1. f3
Oh yes I can.
Condemning an entire newspaper would be just plain silly.
Quoting the Oxford English Dictionary circa 1990 is simply informative, allowing the readers here to make up their own minds.
Well done!
Give yourself a big pat on the back. Oh! You already have.
Grauniad…..
Ahaahaaahaaaa….
My point, exactly.
Bless!
Irony is lost on you poor souls. They don’t dish out critical comprehension skills in the Brigade do they.
And “bless”, almost as pathetic as “sweetie”
There was nothing in the statement Grauniad…..Ahaahaaahaaaa…. to indicate irony, so the fault of the author rather than readers if that was the intended meaning.
It seems likely that Monro suspected an ironic intent but decided to take it at face value anyway. That’s always the peril of using ironic or sarcastic tools without making it obvious.
Oh and somnol sticks it’s head out after coming on shift.
We’re just waiting for tripleduped to make up the platoon.
Ouch!
Thanks.
Sweetie would have been so much better.
Maybe think about changing your picture to Scooby Doo?
In other news: Ukrainians have such an acute sense of humour their Comedian leader is a billionaire.
Scotland leads the way in comedian leaders, but clearly not in commentary.
You might want to consider and investigate whether war crimes have been committed by the Ukrainians, particularly the Azov Brigade. The three soldiers in question may well be guilty, but it does not mean that the Russian Army as a whole is guilty. Also registering a crime does not mean it actually happened.
What about this:
Bloomberg: EU develops plan to buy gas from Russia without violating sanctions
The European Union intends to offer gas importers a solution that, on the one hand, allows them to avoid violating sanctions when buying fuel in Russia, and, on the other hand, to satisfy the requirements of the Russian Federation to pay in rubles.
The executive body of the EU at a closed meeting allowed the governments of European countries to open ruble accounts in Gazprombank and buy Russian gas. However, companies must make a clear statement that they consider their obligations fulfilled when they pay in euros or dollars in accordance with existing contracts. After that, European buyers should not require any action from Russia regarding payment.
The EU’s executive body has told governments that the guidance will allow them to buy gas without violating anti-Russian sanctions.
According to Putin’s decree, companies must open two accounts with Gazprombank – one in euros and one in rubles. At the same time, payments for gas are not credited until the conversion of euros into rubles.
Earlier it was reported that 20 European companies have already opened ruble accounts with Gazprombank, 14 have requested documents for opening an account, and 4 have already made a payment in rubles.
The plot thickens……
Finland is in payment arrears, according to Russia. No idea if that’s true.
Ukraine shut off the European gas, not bcc Russia. That’s Ukraine weaponising Russian gas and holding European citizens hostage.of course, this is done at the behest of the the US, UK and EU for specific purposes and agendas.
The wonderful and magical world of central planning …
Am I the only one wondering why, if the business of surviving without Russian gas is such a herculean task, why no one from the EU or anywhere else for that matter, is attempting to get the two sides to a table to talk about a cease-fire and some solution around territory. Turkey perhaps, or the French..?
Good gracious, this sort of practical, logical, down to Earth, common sense, realistic thinking just will not do in the new speak, new think, modern world! Can you imagine if people had thought like this we would not have had lock-downs, face-masks or universal vaccines, people would not be wringing their hands in despair over a climate change that nobody can actually find. I fear you are going to have to mend your ways, re-programme your thinking and get back on message before it is too late.
Perhaps the point is the clearance of people and buildings from the country, so we can step in and steal natural resources under the guise of ‘rebuilding’…
Rumours abound just now that senior NATO officers and staff have surrendered @ Azovstal
https://mobile.twitter.com/GonzaloLira1968/status/1525865485149011969?s=20https://twitter.com/GonzaloLira1968/status/1525865485149011969?s=20
Somebody has been protected at Azovstal. The efforts to prevent surrender to the Russians (from both within Azovstal and outside it) have been extraordinary.
Which is why Sec. Austin was soooo interested in speaking to Sec. Shoigun recently.
Worried about a US 4 star General and a UK Lt Col. appearing on Russian TV……
Oh what a treat that would be! Would be censored in Johnsonland of course!
Well, well …what goes around comes around. Is that what has taken the Russians so long?
They wanted whoever was there alive; and they insisted that they surrender to them – not to the UN or Red Cross (fine for the civilians).
Lovely jubbly
.
Far by less people would have died if the west just let Ukraine fall then did the sanctions they are currently doing.
the invasion by Russia is not right but not is prolonging the invasion and creating a proxy war.
Surely, the West doesn’t really care how many people die?
The terms almost agreed upon in Istanbul are revealing.
The Ukrainians knew by the end of the first week that they were in terrible trouble; but Zelensky was given firm instructions, and the possibilities of a swift end with relatively few casualties were gone.
The west doesn’t care how many non western people die, is likely more accurate.
It seems that putting one of your boots on the necks of European people’s, and with the other, trampling on all ideas of liberty and personal autonomy is easy stuff, and can be achieved in the blinking of an eye.
Strategic planning, true political savvy, forward thinking and vision, plus realpolitik in a world not full of eco greens and wokery are well beyond the abilities of this ersatz crew of hucksters and crooked operators.
I’m sure the windmills will provide …….
Oh.
Rumours abound now that everyone in the West is starving:
‘British pensioners eat toothpaste for dinner…’
RIA Novosti 16 April 22