Wednesday, February 13, 2008

Domicile Hysteria

The UK Chancellor (Finance Minister) Alistair Darling has backed down in response to lobbying from Britain's business community to continue subsidising wealthy foreign "non-domicile" taxpayers, by allowing them to pay minimal taxes and keep their foreign tax affairs secret. This is an important matter. As The Guardian puts it:

There are 120,000 registered non-doms, most of them wealthy City workers and super rich individuals who live in the UK, who keep much of their earnings and assets offshore. A further six to eight million people, mostly on low incomes, are believed to be living in the UK but registered oversees for tax purposes.

TJN and especially Richard Murphy have taken a lead role in getting the domicile issue onto the public agenda. The campaign has been a great success: Britain's newspapers today are positively fizzing with the story. Responses range from hysterical worries that Britain's richest people will leave in droves, to those who rightly point out the damage that such abusive taxation structures cause to the country, let alone to other nations. Let's have a look at some of the commentary about this.

Vince Cable, treasury spokesman for the opposition Liberal Democrats, said this:

The government has made an unholy mess of this issue and is being made to look thoroughly foolish, now it has been demonstrated that ministers haven't thought through the implications of their own policies. However, there has been some outrageous special pleading from the City with wildly exaggerated accounts of the damage that would be done by taxing non-domiciled residents. British taxpayers do not understand why they should pay 40% top rate tax, while the super-rich may pay little more than council tax on houses worth tens of millions.

and in the FT he added:

The generous tax treatment of non-doms is still a scandal requiring action. Ordinary taxpayers are angry that rich people can use loopholes and expensive lawyers to avoid paying tax at up to 40 per cent like the rest of us. For a millionaire, 40 per cent is not a penal rate.

The (rather right-wing) Daily Mail seemed to agree.

The idea that the investment banks and private equity princelings will remove themselves to Switzerland or Monaco is empty. On the same day as Trade Minister Lord Digby Jones was rebelling against his own government on nondoms, one of the world's largest financial groups, GE Money, with assets of £100bn and revenues of £13bn, gamely announced it would move its headquarters to London. I suggest the CBI chieftains, Lord Digby Jones and all the other opponents of the non-dom tax, buy themselves a cold compress and cool down. London's leadership as a financial centre is not endangered.

The Guardian, in a leader article, said:

The risk to revenue points to pressing ahead with care, not abandoning the plan. There is little reason to think the current proposals will provoke a mass emigration.

The commentator Will Hutton had these words to say:

The prime minister is said to be worried at Labour losing its "pro-business" reputation - as though knowledge economy entrepreneurs in west London or manufacturers in Yorkshire require foreigners to pay no tax as evidence of Labour's pro-business credentials. I doubt it.

The Treasury misread the politics and thought it could seize the moment to do something long needed; to win powers to look at the income generated by UK based residents and non-residents held in overseas trusts. Anybody who thinks that every penny put through these trusts is honest needs to be taken away to the funny farm; they are long standing means of avoiding UK tax as everybody knows. If they were clean their owners could not object to being required to submit details to the Inland Revenue. If the City's pre-eminence is based on tax avoidance, it will not long survive - a counter-argument that could and should have been made.

However with a weak trade union movement, little wider intellectual support and no prior preparing of mainstream opinion for a long overdue change, the Treasury has been bullied into abandoning its proposed powers to investigate offshore trusts. It is a bad moment for everybody. It shows the City at its self-interested tax-avoiding worse; inflames anti-foreigner sentiment through characterising them as wanting to take but not give; and politically allows the chancellor's enemies to declare that he is weak. In truth some ground has been won and long overdue tax will be paid because the non-dom levy will remain - but how much better it would have been to
have judged the politics correctly from the beginning, sold the package properly and to have resisted the bullying.

Neal Lawson added this:

I spent too many of the post 1997 years being a business lobbyist. It happened because the years in the opposition wilderness turned desperation into capitulation. In the yearning to win, I forgot for a while why we needed to. When power becomes everything, principle takes a back seat. Too many stopped believing there was any inherent conflict between labour and capital and that any tensions could be spun or "triangulated" away. Like frogs boiling in water, you don't know what's happening until it is too late. The New Labour tent could be so big that politics itself could be contained. It would be the end of left and right division and a new modern era of "what works".

Eventually, democracy itself is diminished. If politicians are only about the preservation and promotion of business interests, and not about a vision of the good society, then what is the point of voting? The people aren't stupid. They turn away, leaving just the lobbyists. The capture is complete. Politics becomes an examination of MPs' expense accounts, while the real issues like the growing gap between rich and poor or the news that more and more are being forced to choose between eating or heating are left untouched.

Richard Murphy weighed in:

Financial services are growing rapidly and ate highly profitable: it appears to have no need for a subsidy at all. The south east of England has an over-heated economy. It likewise appears to have no need for a subsidy. Losing some new entrants into both of these overheated sectors may be of benefit to our economy.

He added this:

The domicile rule as used in UK taxation discriminates between people on the basis of their place of national origin. Since 2003 this has been illegal in the UK on the basis of amendments passed that year by the UK government and consistent with discrimination law across the whole of Europe. Do we really want a tax system based on such a profoundly unethical, as well as illegal, rule?

And this

This £30,000, it must be stressed is not a payment of tax. No other country will recognise it as such under double tax treaties. This is sure evidence it is not tax. In that case, what is it? I’d call it a payment to secure a favour: the favour is not paying tax. In that case a bribe is the closest thing I can think it akin to. After all, they’re very often a payment to a government to ignore the legal obligation normally imposed upon a person and to turn a blind eye to what is actually happening. We see this sort of payment in many countries in the world where benefit is secured by payment of a sum to obtain advantage unwarranted under the law. And we call it corruption.

We should add the analysis we have been making on the damage that being a tax haven can cause to your society, which is further developed in an article in our newsletter, Tax Justice Focus. This is bolstered by a wonderful recent article entitled "Cityphilia" in the London Review of Books, about how money from the City of London has affected the capital.

In London, the effect of that money has become almost entirely toxic. I'm not talking here a
bout middle-class envy - the resentment increasingly expressed about the 'middle-class poor' about how unfair it is that these bankers get paid so much for contributing so little. That resentment seems to me to be largely hypocritical, a middle-class resentment of one of the few forms of inequality that doesn't benefit them. But City money is strangling London life. The presence of so many people who don't have to care what things cost raises the price of everything, and in the area of housing, in particular, is causing London's demographics to look like the radiation map of a thermonuclear blast. In this analogy only the City types can survive close to the heart of the explosion.

The Comedian Ricky Gervais, star of The Office ends this blog on a related theme. Celebrities who live offshore for tax purposes are "a disgrace", he says. "There's something unsavoury about tax exiles," said the comedian. Gervais himself loves to pay tax: "It helps justify how much I earn," said Gervais, who often speaks of his embarrassment at his earnings.

Sympathy for the non-domiciled of Britain is running out, as Richard Murphy points out. Add it all up, and it is clear that the domicile rule should go.


Anonymous Anonymous said...

Great post. thank you.

12:40 pm  

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