Let the rich go, there’ll be more along soon

This is the first year I’ve felt maybe more politically engaged and opinionated than I ever have. The Tories have worked tirelessly and unashamedly to benefit their rich friends. Labour is invisible, led by a robot with a faulty speech chip (he only communicates with other robots). And the Lib Dems’ only meaningful political statement would be to stick a knife into the coalition, demand an election and leave the Tories isolated, on whatever principle they have left.

But this year 38 Degrees and UKUncut have genuinely swayed UK politics, supported in their anti-tax-dodging campaigns by the investigative work of Private Eye (still worth a subscription, despite the 1950s prudishness). The support and change that these groups are achieving makes me really proud of the popular socialist majority in the UK – the majority of people who didn’t vote for the Conservatives in 2010, or 2005, or in fact in any vote since the second world war.

UKUncut’s work has got the Eye’s 2009 story about Vodafone’s £6bn tax dodge onto the front page of the Daily Mail and Daily Telegraph, and the total amount of unpaid tax from corporations estimated to be £25bn. It seems a huge step for the Mail, a Conservative-supporting, free market newspaper to come out against uncollected taxes from businesses (even if they didn’t contrast it to their favourite figure, the rather smaller estimate of £3bn in annual benefits fraud, the bill for “dole scum”).

Suddenly it seems hugely important that our tax office is fair, accountable to parliament, and funded to do its job. They are the engine for funding the UK,  and of all the government departments, surely no expense can be spared to ensure it runs smoothly and properly. We’ll see how that plays out over the next few months as its well-lunched chief is eyeing the door.

Since there’s a chance of taxation reform becoming a political issue, we’ve started to hear fresh complaints about the 50p tax rate for personal earnings over £150,000, which was introduced nearly two years ago.

Londoner Charlie Mullins, owner of a plumbing firm, argues on the BBC that it should be dropped. ”If you tax a man too much there’s going to come to a point where he says enough is enough and chucks down his tools.” – I think that might be paraphrased from Atlas Shrugged. Strolling through his call centre, he says he doesn’t need to work, and could take his entrepreneurial talent abroad, but wouldn’t. The problem with that argument is that he hasn’t made an argument. Charlie might be able to own a plumbing firm and live abroad, depriving the exchequer of some tax but you’d struggle to bring the call centre for a London plumbing firm to Singapore, and definitely not the plumbers.

In the mean time, Charlie would probably find his firm competing with locally owned, better-informed firms who are willing to stay in the country where they find a competitive edge. If he closed down his firm, London’s pipes wouldn’t stop bursting. Someone would be paid to fix them.

What percentage of English-born “talent” would really choose to take a job that necessitated them leaving the country? On a annual salary of £250,000, that’s £10,000 less take-home pay per year, leaving the best part of £140,000 take-home. Is that enough to leave the country you were born in for? Who exactly are these rich people who have so little personal connection with their home that they apparently threaten government policy with threats to up and leave, to take their business elsewhere? Because Charlie says has already told us he’s not one of them.

No British-born company owner, at the start of their business thinks, “one day I might paying myself £150,000 so the first thing I’d better do is move to Singapore and start my business there”.  Only after years of slog are you able to take home that amount of money, and if you own your company outright and pay yourself through dividends, you pay only 36.1%. The tax incentive to entrepreneurship and local business ownership is right there already.

So that leaves the £150,000+ salaries that are paid by large companies, and only to a tiny percentage of their work force. How many of Diageo’s 40,000 employees are earning that much? And how much does it cost a £10bn company to nudge its salaries north to keep them competitive in such a market?

High salaries are surely far more common in industries where the rich are paying to make themselves richer: fund managers, casino bankers, planners of complex tax avoidance schemes etc., arguably the very activities that caused a global economic crash. None of these activities make the country wealthier, only a very small number of people who happen to be in it.

So if this (or a future) government is serious about entrepreneurship, it can stop worrying right now about a “globally competitive tax regime”, and shake off its negotiations with big business. Nobody wants the UK to be subjects to the caprices of mega-corporations who are simply looking for the best deal for their HQ – what good did Ireland’s low corporation tax rates do for it? Surely it’s in a global company’s best short-term interests to locate in a country that has not just a low corporation tax rate, but where jobs are scarce and salaries low? George Osborne’s humiliation should have put the brakes on such a race to the bottom.

Anyone truly creating wealth and jobs will already never be troubled by the higher tax bands. In a properly-run economy, the personal and corporate whiners who threaten to leave are welcome to. They will be gladly replaced by people who want to live, work and incorporate in the UK, reaping the advantages of doing real work, not just high-stakes market manipulation.

4 thoughts on “Let the rich go, there’ll be more along soon

  1. “and if you own your company outright and pay yourself through dividends, you pay only 36.1%”

    Not only that, but there’s no national insurance to pay, so instead of a 52% marginal tax rate (50% tax + 2% NI) you pay 36.1%.

  2. The dividend tax rate went up by 10% at the same time as the 50% tax rate was introduced. This means that while a business owner can take money from the company at less than the headline 50% rate they still pay more tax under the revised rules.

    A business owner who was paying themselves £500,000 per annum would have taken home £395,915 in tax year 2009-2010 and £281,625 in tax year 2011-2012. That is a reduction in take home pay of over £100,000 per annum.

    Assuming that they need this additional £100k to maintain their lifestyle they would need to pull that much extra from the business. They would therefore reduce the amount available within the business for investment, expansion, job creation etc.

    That’s why the 50% tax change impacts the amount small businesses have to invest.

    • Yes – there is an additional rate for dividends too. But like I said, it’s still substantially less than 50% – an effective 36.1%.

      Your figures are way out. Someone taking £500,000 in dividends would pay £157,680 under the current rules – that’s a 31.5% effective tax rate, the same as someone on a salary of £60,000. The difference compared to the year before will be £27,180. That’s no change in lifestyle, just some slight brakes on accumulating wealth.

      If someone chooses to top up the difference by drawing more from a profit-making company that they own, they still can. But they don’t get to take any moral high ground and say they’re looking out for UK PLC – they’re just adding to a luxurious lifestyle, or “post-entrepreneurial” phase of their life.

      Therefore the additional rate tax remains an incentive to investment, risk-taking and job creation. If high earners still want to hoard it, they will just have to pay a little extra.