A snowballing exodus of high-earners from Britain – the top 5% of whom pay half of all income tax – is a disaster for Rachel Reeves brought on by her own war on wealth, financial advisers have warned. The Telegraph‘s Eir Nolsøe has more.
Rachel Reeves likes to present herself as a friend of the global elite, rubbing shoulders with finance ministers in Washington and posting pictures online meeting Wall Street billionaires.
But behind the façade, a storm is brewing at home over the Government’s change to non-dom tax rules on these financial masters of the universe, who help fuel a disproportionate amount of UK tax receipts.
Fresh figures this week showed that the British Government is having to borrow more than expected, as tax income typically paid by the wealthiest has disappointed since the start of the year.
Lower capital gains taxes, levies on self-assessed income and a weak growth in financial services bonuses have also contributed to the dire picture for Reeves.
The list of wealthy non-doms and British business owners fleeing the UK is also growing longer by the day, with places such as Dubai, Italy and Greece mopping up Britain’s richest émigrés.
Last week, Richard Gnodde, Goldman Sachs’s most senior banker outside the US, and British billionaire brothers Ian and Richard Livingstone became the latest to shift their tax domicile outside the UK.
They join Egypt’s richest man, Nassef Sawiris, who co-owns Aston Villa Football Club. Steel magnate Lakshmi Mittal, whose family is worth £15 billion, is expected to follow.
Advisers to wealthy global elites warn the chickens are coming home to roost after Reeves’s tax changes, and that efforts to scale back attacks on the wealthy have fallen short.
As the Chancellor returns from her Washington trip, is she starting to regret her move to collapse the non-dom regime?
Among the first to know when a billionaire or multimillionaire decides to up and leave are their tax advisers.
Ceri Vokes, a partner at law firm Withers, says around 10% to 15% of her clients have left Britain because of Reeves’s less generous non-dom scheme and changes to inheritance tax for business owners.
Those with the most to lose are the first to leave, she says.
“It’s definitely the case that the clients who left were those at the upper end of the wealth spectrum. We definitely saw more billionaires leave than millionaires and hundred-millionaires,” Vokes says.
Reeves in January tried to temper the blow with a more generous phase-out of the tax benefit but it “had absolutely zero impact on client behaviour”, Vokes adds.
Britain’s non-dom rules, which date back to the days of William Pitt the Younger (1759-1806), allow foreigners living in the UK to avoid paying tax on income from abroad.
In the 21st century, these wealthy non-doms have become an increasingly important source of tax revenue for successive British governments.
According to the latest government figures, there were 37,800 non-doms in the UK in 2022 who chose to only have foreign income or capital gains taxed if brought into the country.
On average, these people paid £170,700 each in income and capital gains taxes as well as National Insurance contributions.
In comparison, the average British worker pays £7,000 in income tax and National Insurance and most would have paid no capital gains tax at all.
Stuart Adam, of the Institute for Fiscal Studies, says it is impossible to say with any certainty yet whether the blow from wealthy people upping and leaving is bigger than Britain’s fiscal watchdog had anticipated.
Indeed, just as much of a concern is how many people would normally come that now won’t – a difficult thing to measure.
There is a lot at stake: the top 1% of the highest-earning workers pay 28.2% of all of the Government’s income tax revenues. If you zoom out a little further, the top 5pc pay just less than half at 48.8%.
“One of the consequences of tax revenue becoming more reliant on a smaller number of people is that it does make the public finances more vulnerable to the behaviour of that small number of people,” Adam says.
“If you did see a large exodus, that would have an outside impact on the public finances. That is a reason to worry,” he adds.
Worth reading in full.
To join in with the discussion please make a donation to The Daily Sceptic.
Profanity and abuse will be removed and may lead to a permanent ban.