Britain calls financiers' bluff - and is vindicated
"The results are in -- London's hedge funds are staying put despite Prime Minister Gordon Brown's controversial tax hike. That news directly conflicts with all we were told when the U.K. announced it was raising the top individual tax rate from 40% to 50%. The higher rate applies to taxable income in excess of £150,000 per year (about $248,000 at current exchange rates) and bears a resemblance to President Barack Obama's proposal to increase U.S. taxes on those making over $250,000 per year.
The episode underscores a valuable lesson for policymakers around the world who fear their actions could trigger an exodus of local businesses.
Cast your mind back a few months to April 2009. The U.K. budget was just released to the public and news of the big tax hike was met with a chorus of hissing from British financiers who argued that even the slightest increase in their taxes was unacceptable. They warned that such a move would transform downtown London from a thriving metropolis into a dismal ghost town.
. . .
As the Wall Street Journal recently reported, consultancies were swamped over the spring and summer with requests from clients looking to ditch London and move overseas to more accommodating tax environments. After considering the costs and inconveniences of business relocation, however, less than 2% of those client inquiries moved beyond the level of preliminary feasibility studies. In the end, hardly any financial firms have actually moved out of London. It just wasn't worth it.
Yes, there is Dubai -- but it's 120 degrees in the shade and despite the posh shopping malls you're still stuck in the middle of a desert. Yes, there is Zurich -- but it's boring and British bankers don't want to learn German. Yes, there is Singapore -- but do you really want to uproot your family and move halfway around the world? Besides, your kids might get arrested for skateboarding and caned by the police"
Not too much seems to have changed since that was written. Read on. Valuable lessons, indeed.