Transcription
Hello and welcome to Spectator TV. This week, the cover piece is: Go Why the Rich Are Fleeing Britain. Now, to discuss this, I’m joined by the author of the cover piece, our new economics editor.
Are you are you still new?
I think I’m new for like six months.
You got a probation.
Probation.
Yeah. Our new economics editor, Michael Simmons. Now, Michael, I mean, just to start off with, what what’s the imagery behind the cover?
So, the idea behind the cover is it’s um Monopoly themed, although Hasbro, please do not sue us. Um, and so you’ve got, for instance, you’ve got the the community chest there. And obviously, everyone knows the go square, you know, collect 200 as you pass go. And and the point is that um, as I reveal in the piece, and as I’m sure we’ll get into, the the super rich are fleeing Britain and they’re taking their their assets, their wealth, and crucially their taxes with them.
How bad is it? What is the scale we’re talking?
So the rich, and I should say what I mean by by the rich. So the the people that track this use a definition of people who have got liquid assets of over a million dollars. And we use dollars because they don’t just track this for the UK, they track it for, you know, all all sorts of countries because those with the broadest shoulders, as um you know, as Kier Starmer likes to say, also have the the longest legs. So they this is a mobile group of people. These people have been sort of leaving. So, we’ve had a net outflow of high net wealth individuals since about 2016, but in the last year of data, it’s it’s really exploded. London alone lost um over 11,000 um dollar millionaires. So, they the the number of people, you know, giving up on Britain and going just really has accelerated. And so, what happens here is the rich leave. The rich are the ones that are paying the most taxes. And maybe you could explain a bit of t statistic wise and then what are the repercussions when we don’t have as much going into tax revenue.
So um we reveal some some stats in the piece that the the Treasury and HMRC always publish the the how much the top 1% of earners contribute in income tax. So that’s that’s a known figure already. Um, and that’s about a third. So, almost a third of all income tax that goes into goes into inland revenue comes from just the top 1% um of taxpayers. But what we reveal in uh the piece is from this Freedom of Information request that our brilliant director of research John O’Neal did about what happens when you zoom in even further. So, if you look at the top 0 I’m going to get this wrong. It’s either the top 0.1% or the top 0.01%.
Yeah. Go and look at the piece to check it out, but one of those two counts for just about 4,000 people. Um, but they still bring in 6% of um the tax. Now, what that means is if it what that means in practical sort of cash terms, that’s about 4 million each. So, if just one of those people left, then it would take um 1,300 ordinary taxpayers to replace them. So, in other words, we’d need to create 1,300 new jobs that were paying enough to go into income tax to replace just one of those people. And as I also reveal in the piece, there’s multiple people that we know for a fact have have left regardless of what the sort of survey data shows. And then obviously on to your second point about what this means for the UK. We’ve talked on Spec TV before. We’ve written on the website and indeed the magazine many times about, you know, the the dire fiscal position that that Britain’s in. You know the the challenges that the chancellor has about keeping her headroom and balancing the uh books to pay for the everex expanding size of the state whether that’s for benefits for you know NHS these are bottom bottomless pits of of money um and why this is an issue now is if you look at last year’s tax take the government makes all the decisions based on what the OBR so the office for budget responsibility expects it will get in in tax revenue and what it will have to borrow and last year it had to borrow 15 billion pounds um more than had been forecast and a large part of that is the tax being lower than expected. Now there’s there’s number of factors to that. Part of it’s to do with weak economic growth but I posit in the piece that part of the tax dropping is because of these wealthy taxpayers leaving Britain.
How significant was the decisions around the non-doms that Rachel Reeves um changed in the autumn statement?
Yeah. So it it it is it is exactly um the nondoms that is what has set people off. You know um I’ve heard discussions about oh people are a bit upset about the VAT on private schools issues with changes to to capital gains tax and and and income tax. But when I spoke to wealthy individuals but also wealth managers and and lawyers for nondoms for doing research for the piece they all came down to the nondom reform. Now, in in fairness to Rachel Reid, the nondom regime was actually abolished by Jeremy Hunt in the spring budget last year in a sort of act of act of desperation really. Um, one one of the people I spoke to made the point that uh the the wealthy people have always seen the Tories as kind of their defenders of wealth creation, the defenders of people who they would say have earned earned money. Uh, and they they were sort of abandoned as the Tories sort of threw the kitchen sink at trying to not be wiped out in the election. But what Rachel Reeves then did um which is what’s they say is really sort of killed the game for wealth in Britain is this technical sort of point which is called grandfathering. So when you set up uh a tax uh sorry when you set up a trust for inheritance tax purposes um it’s not unusual that the government makes reforms. So we first saw the regime that governs inheritance tax and trust changed in in 1980 and then again by Gordon Brown and also by George Osborne. But grandfathering was this accepted convention that if you changed a trust or changed the rules around how trusts are taxed or what’s taxed, it would only apply to trusts created after that date. And I think people would just see that as a as a as a it would be backdated.
Exactly. It wouldn’t be backdated. it wouldn’t be retroactive. But what Rachel Reeves has done is she said the the changes she made were basically that inheritance tax will now apply to worldwide assets. But rather than and that’s that follows on from what Jeremy Hunt did. But what Rachel Reeves did is she said we’re getting rid of grandfathering. This is going to apply to all all your wealth that’s already in the trust. Which means that if you’re a nondom that’s moved over, that’s immigrated into Britain or immigrated into Britain, your wealth that you’ve created or you’ve made or earned or been given, whatever, however you got it in other countries before you ever set foot in Britain could now be taxed under inheritance tax. And that is what they just these people say they just cannot put up with. And it’s interesting because you mentioned in the piece that HMRC were warned about this and they traveled across England before the autumn statement to the north spoke to wealth advisers who all who all said you are going to have a situation where the wealthy are going to leave Britain.
Yeah, you’re exactly right. So there was uh there was a consultation process with the wealth management industry where they all made this point that whatever you do like fair enough we’ve lost the argument on whether the wealthy should be taxed more etc etc but you must keep this grandfathering point. Um, and not only that, I know for a fact that during the election, Rachel Ree, I can’t say if the chancellor personally saw this email, but her team um was emailed, you know, to to give this warning. Um, and Rich Reese’s team and the Treasury have completely ignored it. And this is really because Labour were um relying on fans of the spectator from the from the COVID days will know of my obsession of with dodgy modeling h often from the University of Warwick. H and those guys obviously although a different team completely have have struck again labour were relying on this paper put together by economists from the University of War and also the London School of Economics and that said that of about the 70,000 nondoms that are in Britain the tax changes would just mean that 70 would leave so basically who cares 70 very rich people who don’t have great ties to Britain are pissing off does it really matter but privately at least one of the offers of that study has has admitted they made some mistakes and effectively it was a it was a static model. It didn’t really take in proper behavioral responses and specifically it didn’t look at this grandfathering um point. And so there’s other modeling that um I’ve mentioned in the piece has also been reported um in some other places that suggests that far from bringing in money uh to the excheer by tightening up the tax regime, it could actually cost us billions and billions, not even to mention jobs lost from the you know the companies that will move.
Yes. I actually I had a look at this line that you had in your piece, Michael, because um I think what you said is they might they’ve suggested that it’s a it could raise 10 billion pounds and then when the um assessment is redone actually the cost could be over 12.2 billion. Is that is that right? And I want to bring up some of your Sage modeling rage. Um because what this seems to me is that you’re looking at a worst case scenario situation, but actually they’re also looking at a best case scenario situation and it could be anywhere in between all of these. There is so many different variabilities. So you’re saying I’ve cherrypicked a stat to fit my argument. I think you could be catastrophizing the situation.
Yeah. I I mean look that’s um you’re completely fair to say how can I just discount the model that that they’ve relied on but say well this this model’s golden whilst I would argue that some of the other models I use to back up my case I think are better because they do they do consider the dynamics effects of taxation so they they um they examine the behavioral response you it’s a valid point you know I’m I’m critical of modeling in in general I can’t just say even though this one’s slightly better that that means it’s But I would go back to the point I made you at the start about how if even one or two people leave it it it counts for millions of pounds. And my anecdotal reporting in the piece gives examples of people who have left or are going to leave. So we know this is happening. We know from wealth um management firms that loads of their clients um are leaving. One particular firm who I can’t name has basically just moved to Geneva, moved all their staff because all all their clients have gone. So the models we might argue about um how many people specifically have gone. I don’t think there’s much argument about the cost implications because the bit that changes that variable is about whether or not people actually leave and I think the wider reporting suggests that that bit is true. They are gone.
Have your calculations taken into consideration the people that are coming into Britain and the businesses that is coming into Britain? I mean, just last week, I think I read somewhere that a Brazilian bank has signed off a lease for the most expensive rent ever in London. So, there’s still a lot of wealth and business coming back into London at the same time.
Well, again, look, this is a this is a flaw of any modeling. I believe the the the one of the ones I mentioned does does look at that and they all assume that there’s not going to be um a great inflow. I mean just just yesterday it was it was floated and we write about this in the spectator’s economics um newsletter today as well that the government’s looking at bringing an investor visa to attract these um people back. And if that works and is as you say businesses and wealth people are are pouring into the UK then perhaps my my thesis is is entirely wrong. But I would I would refer you to some quotes um from the two people I I spoke to for the piece. Two people that are in the wealth management industry and I I I said that point, you know, what if the government just decided to revert on its policies or decided to create a regime that attracted rich people and they would say that the damage is already done. Because if you are a wealthy individual, you’re an investor, you you you manage your family wealth or you’re or you’re a business owner or or whatever, what’s more important to you than a um than having a competitive tax regime is having certainty about planning your finances. And one person actually said to me that the worst thing the government could do could be to flip-flop and try to attract them back because then we just look unserious. These people plan on 10, 20 year horizons. So if they think, oh, the tax policy changes every year, then that’s going to put people off even more.
Gary Stevenson, the YouTuber who has grown huge popularity, made a video recently about, you know, are the rich leaving Britain and what what are the consequences? And and when he talks about taxing the wealth, the point, and he made a very similar point to you at the beginning, which is that I want to separate between the two different types of wealth. He says, “I wouldn’t want to put taxes on um the working the people that are working high net um earners, but actually we should be taxing assets in Britain and because those assets aren’t going anywhere. Um they can’t leave Britain. They’re in in most cases in situ.” What do you think of that argument? Um because he seemed to believe that that taxing them would put a stop to any sort of capital flight.
Um Yeah. Well, look, I I understand why people um see the appeal of of kind of of Gary’s message and why you might want to target the wealthy and assets. And by the way, to be clear, I don’t have personal sympathy and I don’t expect readers to have personal sympathy for the for the ultra rich feeling they’re hard done by. I mean, I I live in a um you know, mouseinfested flat share in a part of London that regularly has IRA stronghold graffitied on the wall. You know, I don’t I don’t feel sympathy for these people, but the fact is we need them. I think Gary’s completely wrong uh that they can’t move move assets. These people are incredibly mobile, specifically the non-doms who obviously by definition came here at some point. These people are accustomed to leaving and to to taking their assets with them. I think they’re selling up their properties. Another stat in the piece is that some of the places you’d think are the most expensive parts of London, Kensington and Chelsea, Westminster, etc., they’re seeing um house prices drop actually at the fastest rate compared to other parts of the country where where house prices are going up. And on on the general point of you know the the rich should be taxed more well I don’t think anyone would argue that against the fact that they should take the brunt but in Britain if you actually look at individual taxes so not the overall tax burden which as we say on the spectator all the time is at a postwar high yeah if you look at individual taxes for lower earners and medium sort of income earners the tax rate compared to the size of the state is not actually that high compared to say some European countries, but the top percent of earners have really been squeezed. Um, I I tried to remember this, but I couldn’t. I a nice spectator postcard.
Professional notes.
Yeah. In at the start of the ‘9s, someone with a salary in the 99th percentile, which is about £54,000, they paid 36% of their salary in tax. That same percentile now, obviously, we’ve had inflation and stuff, so that salary is more like 200 grand. They pay 42% of of their income in tax. So, this is a great it’s it’s just a myth to say that we haven’t been going after the, you know, the high earners or the wealthy individuals. We’ve squeezed them more and more and the pips are beginning to squeak.
You spoke to Charlie Mullins who is one of the millionaires that has left Britain and divides his time between um Spain and Dubai and he said he’s not going to come back in a Labour government and will only return if reform get in. And I’m interested to know what you think of that because whilst yes you talk about uh Rachel Reeves’s budget and all the damage that the chancellor has done, it is very politically unpopular for say reform or the next government to come in and create changes that um create tax incentives for the rich to remain in Britain. So how does an the next government get around that?
Well, look, you’re right. I mean the the beauty of journalism is we can just shout about problems without having to actually the people that come up with the solutions. So like I I obviously have sympathy and with whoever the government is and whoever is occupying number 11 with with how you do this because as you say it’s it’s um polit would be politically very very difficult to say we actually need to to really attract these people. And in fact, even though I think some people in number 10 knew that this was going to lead to an exodus, when when sort of privately they’re asked about it, people in number 10 will say, “Well, it pulls well, so we’ve got to do it.” Um, I think there is a way that you do it, and it’s you do you present it as part of a suite of reforms. So, we say, “We want to change uh the size of the British state. It’s grown too big. We want to make it smaller. We want to make it nimble. We want to make it efficient to basically improve everyone’s living standards.” and that would improve um tax benefits for people across the income uh spectrum. So it be a whole suite of measures and as part of that you would include and you would present it as we want the brightest brains, the the richest um investors to to move here. And by the way, there’s a great opportunity. Um, there’s there’s lots of very wealthy American academics, business owners who are are are anti-Trump, who don’t like the some are maybe a bit hyperbolic about the way America is going. And there’s an opportunity to present this as not as right, we just want any rich people here. We’re going to specifically take these try to attract these Americans. So, I think there’s ways you can address it. There’s ways you can handle the cons, but I I wouldn’t argue with your point. Of course, it’s very politically difficult.
Final point, Michael, I want to ask you about billionaires because the Sunday Times Rich List has seen that we’ve had the greatest fall in billionaires in Britain in in history. Um, how much of a problem is that? And does the world need billionaires?
Well, this this proves my point, right? Like they’ve they’re going um and again, it’s back to the point I keep reiterating. They’re they’re responsible for for so much of of the tax. If they go, what is going to happen is if and if if they go and the size of the state remains as big as it’s become since COVID. So if we continually expect more and more from welfare and more and more from the NHS, if these people are gone, there is no one left to tax, which means the basic rate of income tax and people around Westminster and Whiteole will tell you as much as the chanc are are ruling out changes to income tax, eventually someone is going to be forced to put up the basic rate by 1 or 2%. And if you if you argue for a more Scandinavian style state and economy and you’re aware of that, then fine. But I think most people who make these arguments that people should be taxed more don’t mean themselves. So that’s where we’re getting to in terms of do we need billionaires or should we have billionaires like in general? I mean obviously look that’s like obscene uh levels of wealth that the vast majority of people are never ever ever going to attain or experience. But if we have a system that that we we live in, capitalism that has actually, you know, improved our lives, improved the human condition, you know, over hundreds of years better than any other idea or ideology that’s been put forward, then that’s that you’re just going to have them. They’re they’re a fact of the system. And so therefore, you know, it’s not something to to do away with.
Very thought-provoking piece. Michael, thank you for joining us on Spectator TV. And to our viewers, if any of you are millionaires and thinking of leaving Britain, please do get in touch and tell us why you are. Or if you’re not and you’re going to stay, let us know about that as well. Um, tell us your thoughts about Michael’s piece. We’d love to hear from you. Thanks for watching and join us again next week.