I dispair
I read this in the Financial Times last week.
‘Chancellor Rachel Reeves rejected claims that there had been an exodus of wealthy residents, telling the Guardian this week, ‘this is a brilliant country and people want to live here’.
Why then has Ferrari reduced the number of cars it sells in Britain to ‘stem the declining residual value of its luxury cars prompted by the departure of wealthy individuals after tax changes and abolition of the relief of the non-dom status’. Remember people living in Britain drive on the left side of the road and their cars need to have their steering wheel on the right, so a car made for the UK market needs to be sold into the UK market.
Ferrari’s move is therefore not political, it is not driven by greed or point scoring it is a direct result of what it sees happening to the sale of its luxury cars. There are fewer people buying second hand Ferraris and the prices are going down.
The changes made by the Labour Party to the taxation of the wealthy, including owners of farms and businesses, are too much, and those who can leave are doing so. The Institute of Fiscal Studies says that 60 of the wealthiest people in the UK collectively contributed more than £3 billion a year in income tax. These numbers say the Institute show how reliant the tax system is on a small number of individuals. Most of these wealthy people can emigrate if they chose to and many have already done so and are considering doing so.
Rachel Reeves is right in some respects, the UK is, for many, a brilliant country; it is relatively safe and has a great history and culture, but more people are choosing to visit the UK, but not live there. If people merely visit the UK they will not be here to buy homes, or buy goods in our shops or set up businesses in the country - with the result that tinkering with taxes at the margins will not make any difference, the tax take will continue to fall.
Looking at each of the three things wealthy people do if they live here rather then visit.
They
buy homes in the UK. I have been trying to sell my home in central London for over three years and although there are still some viewings both estate agents working for have never seen such a stagnant market and report NO sales above £1.6 million.
There has been some mention of the Chancellor imposing a levy on those who own the properties in bands G and H and introducing a new band I and lowering the stamp duty to sweeten the pill.
Imposing further taxes on high end properties will not keep those in the UK from leaving - thereby making matters worse not better. Furthermore for those who are struggling to pay because they cannot sell their homes they will not have the necessary liquidity to pay the tax.
Of course there will always be those who argue that the ‘correction’ of high end prices of properties in London and other desirable places is long overdue, and those thinking of coming to the UK to live for what ever reason will simply wait until the property prices have fallen further before making their move. This will only aggravate the tax take - it will further stagnate the property market.
The second thing people do when they live in the UK rather than visit is to spend in our shops. It is clear from the action taken by Ferrari that few cars are being made with a right hand steering wheel because fewer of the wealthy are living here and there will be less demand for these cars. This is a clear indication that the wealthy are not living here for sufficiently long periods to warrant buying a luxury car - and that goes for other luxury and essential good. If wealthy people are not living here and spending money here - the Treasury does not benefit from the collection of VAT.
The Chancellor is also be rumoured to want to increase the rate of CGT. The same argument applies. People who are tax resident in the UK will simply hold off selling an asset which has increased in value until the rate comes down and once again the Treasury gets nothing.
The third thing the wealthy entrepreneurs will not be doing if they don’t live here is setting up businesses in the UK - why bother. In Dubai there is no tax, fewer regulations, and warmer climate why set up a business in the UK when there are other jurisdictions more favourable for the entrepreneur and their business?
The Chancellor would be better off, in my opinion, to do a U-turn on her promises about not raising income taxes or plugging the budget deficit - and get honest about what is going on and kick-start the economy with some meaningful tax cuts and measures to attract back the wealthy into this country with their businesses - but…
We are dealing not with commercially minded people who can stand back and see what is really happening - we are dealing with politicians with only one aim in sight - to get re-elected at the next general election - and that is simply not going to happen neither will Reeves the hole in her budget.