There are many arguments for taxing the extremely wealthy more. Perhaps the simplest is that while most normal people pay tax of up to 40% on their income (or more), the very wealthy can easily pay less than 1% on their true economic income. To most people that seems very unfair.
But we are often told that addressing the issue would be impossible because the entrepreneurs on whom our economy depends would simply up sticks and leave.
Photo by RDNE Stock project: https://www.pexels.com/photo/businessmen-having-a-toast-5778671/
The arch market fundamentalist Ayn Rand wrote an entire novel, Atlas Shrugged, in which the heroes are entrepreneurs who – because they are treated so unfairly by the rest of society – decide to go on strike, closing down their businesses and bringing the government to its knees. Like the titan Atlas in ancient Greek mythology, who is condemned to hold up the heavens for eternity, the entrepreneurs are bearing the load of sustaining society, and when they go on strike, the heavens fall.
This argument is often presented as a real threat to the rest of society, but this article asks, what would really happen if we decided to go ahead and introduce a fair system of taxation and simply let the wealthy go. In other words, what if we shrug?
The probable answer is that it would make national renewal easier rather than harder:
- First of all, in terms of their money, many have already left;
- Secondly, the saner ones would not leave;
- Thirdly, if more did leave – and we shut the door behind them – that would free up real resources to fix the problems the country urgently needs to address.
In terms of money, many have already left
In 2012, it was revealed that Cameron, then Prime Minister, held most of his wealth in off-shore funds his father had set up in Jersey, Panama and Geneva. When the then Treasurer of the Conservative Party, Lord Fink, was asked about his own tax avoidance, he breezily replied, “The expression tax avoidance is so wide that everyone does tax avoidance at some level.”
And indeed in certain sections of society (the wealthiest 0.01%) it is extremely common to keep one’s wealth off-shore in this way. As research by Annette Alstadsæter, Niels Johannesen, and Gabriel Zucman showed,
“Offshore wealth has a larger effect on inequality in the U.K., Spain, and France, where, by our estimates, 30%–40% of all the wealth of the 0.01% richest households is held abroad. It has dramatic implications in Russia, where the majority of wealth at the top is held outside of the country.”
And some of the wealthiest have already moved entirely. Jim Radcliffe, who used to be Britain’s richest man, moved to Monaco to avoid up to £4 billion in tax. James Dyson went to Singapore. Anthony Bamford has retired from the House of Lords which may help him avoid paying £500m that HMRC believes he owes.
Huge amounts of money are shielded from UK taxes already.
The saner ones would not leave
It is certainly true that by leaving completely, people can further reduce the tax they pay – but they also have to swap living in London (where most of them live), a large cosmopolitan city with an enormous range of world-class cultural attractions, for somewhere like Monaco. London is often ranked as one of the world’s best cities to live in; Monaco does not feature in the top 100. If you care about quality of life, such a swap makes no sense.
Those with businesses in the UK would certainly not close down their own businesses for the simple reason that those businesses are the source of their wealth. They might, if they have not already done so, relocate themselves to reduce their personal taxes, and might (for tax purposes) relocate the headquarters of their businesses to the Cayman Islands, for example – but this is a challenge of tax avoidance not a strike of the Atlas Shrugged variety.
Many wealthy people are patriotic, however, and some have called for higher taxes – including a wealth tax – to be levied on themselves in the interests of fairness. They believe that paying taxes is a moral obligation, not just a legal requirement. They want to feel that they are contributing positively to society, not just milking it. The organisation, Patriotic Millionaires, has many such members. None of these would go.
And, overall, the claim that higher tax rates would result in lower taxes collected, is not supported by the evidence.
More leaving means more resources for society
But perhaps the most striking reason for being prepared to shrug if the wealthiest leave is that rather than reducing the resources available to the rest of society, it would increase them.
The UK operates a fiat currency system in which the government can – and does whenever it really needs to – create money. Since 2009, the Bank of England has created £895 billion of new money by means of Quantitative Easing (QE). The first QE was to help prop up asset prices and prevent a collapse of the UK’s banking system, and more recently we had QE to enable the government to fund the COVID furlough scheme to give UK citizens an income while they were not working. We do not need the wealthy because in some unexplained way the government needs their money.
But what about business investment – wouldn’t this disappear? No: as we explained in our article on the Budget, businesses invest when they can see demand to invest for, not because of tax rates. The UK economy has been growing very slowly, which means that there is not much demand to invest for, and rational business managers will not invest much. Conversely, when demand is rising, managers who fail to invest will lose market share to their competitors. Demand is key.
And we need much higher demand in certain areas if we are to fix the nation’s problems. The extent of what is now needed is large – of the order of £50 billion of additional spending needed:
- £30 billion per annum to tackle the failing health of the nation: funding the NHS properly, investing in prevention and tackling the social causes of ill-health;
- £10 billion per annum on infrastructure and green transition;
- £6 billion per annum for schools;
- £5 billion per annum to keep benefits ahead of inflation.
Despite what we often hear from our politicians, there is no problem of money here: we could simply print more. The problem is that if we did so at a time when supply is constrained by Brexit, by rising rates of ill-health in the workforce and by global energy issues among other factors, we would simply generate inflation. Government can print money at will; it cannot print construction workers or doctors or nurses. So if we want to use more resources on the issues above, we must free-up real resources from less vital tasks.
As one of the ultra-wealthy who is planning to leave pointed out, if he goes, he will lay-off his personal staff. Those who leave will not spend fortunes on construction projects to turn their houses into icebergs. These expenditures are luxuries, not essentials – but they consume real resources that are needed to deliver things that are essential for society.
Reducing demand for inessentials is not a problem for the UK, quite the opposite: it is vital if we want to invest in things which are essential. The global luxury market is around €1.5 trillion (that is €1.5 million million) or around 1.5% of global GDP. In the UK 1.5% of GDP would be around £40 billion.
Conclusion
We should not be afraid of any exodus. We should simply shrug.
But we should make sure that if they leave, we close the door behind them: it should not be possible to leave and avoid taxes but continue to enjoy unfettered access to all the UK has to offer. They should not be able to spend more than a few days per year in the country; they should not be able to buy UK land, businesses or pre-existing assets; they should not be allowed to own critical national infrastructure; they should not be allowed to fund political ‘think tanks’; and they should not be allowed to make political donations.
If they leave, they should leave.
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And take a look at the 99% Organisation and join us.