Episode Six: The Non-Dom Tax Tunnel
John Lanchester
Ed Miliband’s intervention on the subject of abolishing non-dom status is interesting. The non-dom loophole is flagrantly unfair and has corrosive effects on social cohesion: nothing more overtly shows that we aren’t in it together. Look at the upper reaches of the Sunday Times rich list and it’s full of non-doms. The richest people in the US are American, the richest people in France are French, the richest in Germany are German, and so on. The richest people in the UK are from countries where you learn never to ask how somebody made their first million. The reason this loophole has survived – though it’s bigger than a loophole, it’s more like an enormous tunnel – is always officially said to be because the non-doms spend so much money here, and generate so much economic activity, that they end up benefiting the UK exchequer. I don’t buy that line, because if it were true, other countries would have copied us. No other big country in the developed world has chosen to be a residential tax haven for the super-rich. It isn’t a joke or a riff or a slogan to say that the UK has a different law for the rich: the UK actually does have a different law for the rich. London is a wonderful city in many respects, but from the tax point of view it is Monaco-on-Thames.
The non-doms have long been the subject of all kinds of threatening noises from opposition parties, who then tend not to do anything about them when they get into power. A big role in this is thought to be played by donations from non-doms: Greek shipping magnates are said to have talked the Tory government out of fixing the hole in the 1980s, and it’s known that a number of prominent non-doms made multimillion pound donations to New Labour. There were 67,000 non-doms when Blair came to power in 1997. Ten years later, the number was 137,000. Miliband owes nothing to people like that, just as he owes nothing to the right-wing press; this gives him a freedom of movement which for the most part he’s chosen not to take. As the polls stay flat and the demands for big gestures grow louder inside Labour, there may be more where this came from.
In the meantime, I would love the Treasury to make public its calculations on the costs and benefits of the non-dom loophole. There must be such a data set: working out the costs of tax policies is what the Treasury does all day, every day. Maybe they could share some of those calculations with the people who paid for them.
Comments
On the other hand I don't see why we should expect any "foreigner", just because he is working here for a few years, to pay tax on his domestic investment income.
Bottom line is that we should have a system not to discourage rich foreigners from coming to work here for a few years but any UK citizens living here should be treated the same as everyone else.
But of course it's all irrelevant to the election. I think though it does highlight a problem: there is an assumption that if only all these people paid more tax it would fund all sorts of grand plans. It's simply not true: there are not enough of them and there's not enough money. And the more you try and take the more likely their behaviour will change.
In the TV debate there was talk of rich people paying their fare share. What is "fair" is subjective but what is factual is that the top 10% of earners pay x% of all income tax.
(Now I'm going to look up x)
Here are the figures, from this week's FT: "High quality global journalism requires investment. Please share this article with others using the link below, do not cut & paste the article. See our Ts&Cs and Copyright Policy for more detail. Email ftsales.support@ft.com to buy additional rights. http://www.ft.com/cms/s/0/0a9a826c-dd30-11e4-a772-00144feab7de.html#ixzz3WuUwS83V
"Individuals with incomes in the top 10 per cent pay 58 per cent of income taxation, which is arguably acceptable since they control 34 per cent of income. The top 1 per cent pays 27 per cent of income taxation on 12.5 per cent of total income. How much the rich should pay is a political question, but the economic reality is that the present degree of concentration is a risk to the public finances. What seems a secure revenue stream can vanish, like corporate tax revenues from the financial sector in 2008-09."
I have set it out in quintiles: bottom, 2nd, 3rd, 4th, top
Original income: 3%, 7%, 14%, 24%, 51%
Gross income: 7%, 11%, 16%, 23%, 44%
Direct taxes: 3%, 6%, 12%, 23%, 55%
Indirect taxes: 12% 14%, 18%, 23%, 33%
Post tax income: 6%, 12%, 16%, 23%, 43%
Final income: 10%, 14%, 17%, 22%, 38%
Original income is earnings, private pensions, investment income
Gross income is after benefits: state pension, dole, income support housing benefit etc.
Direct tax is income tax, NI and council tax
Indirect tax is VAT, duties, employers NI
Final income is after adding to post tax income benefits in kind: NHS, schooling etc.
Income tax alone: 2%, 5%, 11%, 21%, 61%.
I didn't know those figures before looking them up and think they're quite interesting. Especially the fourth quartile which is almost perfectly consistent all the way down.
I think the indirect tax number is a tricky one because its not clear to me whether higher is "better" or not.
Now, I don't for one second believe that the Labour party actually has any moral principles - like other parties squabbling over the minuscule centre-ground, it is a party of vacuous opportunism - but I keep awaiting those voices who will say, "Yes, we emphatically will close the loophole even if it does have a net negative effect because we will not be held ransom by rich people who demand special treatment in return for their activities."
It doesn't matter if it raises more taxes, it doesn't matter if it creates jobs, if these people are essentially blackmailing our government to give them immoral tax exemptions, they should be told to fuck off and take their money with them. As it is, we already have many other important avenues we should go down to improve the economy, such as sorting out our woeful levels of productivity; we should not be desperately prostrating ourselves before the super-wealthy, offering them ritual trinkets in the hope that their grace and presence will tricklingly improve the lives of the poor. It's pathetic.
What is more interesting I think is the claim that Miliband is unusually unbeholden to many of the people who typically dictate politics from stage left: the press, lobbyists for large corporations, and such like. I've seen it explored in the Spectator quite persuasively. If true, the prospect of Ed as prime minister is exciting. Perhaps because he could make real changes to the status quo, or perhaps because a genuine fight between a powerful public official and the other powerful groups has the potential for all kinds of pyrotechnics. It does seem hard to believe that someone who owes little to any powerful group will find himself in downing street, just by playing his cards right! Surely either he'll be snuffled by the powers that be, or turn out to be less of a rogue than he is sometimes made out to be?