9 hours ago
Reeves' vindictive tax raid on the rich was doomed to fail
To no-one's surprise but the Treasury's, Rachel Reeves' attempts to heavily tax highly internationally mobile high-income or high-wealth individuals have backfired. After sparking an exodus sufficient to significantly undermine the revenues from the schemes – potentially even meaning these taxes cost money instead of raising it – she is reportedly considering a U-turn.
The focus is now on finding an alternative to imposing a 40 per cent inheritance tax on world-wide assets – identified as the single biggest factor in driving rich people away from Britain.
Whilst some specific measures may have bigger effects than others, changing one or two items is unlikely to be game-changing in stopping the UK's loss of high-income and high-wealth individuals – a drain that has persisted for some time now, going back to the 2008/09 Global Financial Crisis, but which has accelerated markedly in recent years.
The UK was traditionally attractive to wealthy people, leading to our attracting a disproportionate share of the world's stock for a range of reasons.
We had one of the top 'world cities' in London, with fantastic activities for rich people to engage in combined with much lower crime than cities in many other countries, low risk of revolution or civil disorder, a long tradition of opposing the arbitrary confiscation of wealth, little political support for extremely high taxes on high income, secure property rights, internationally famous schools for the children of the wealthy to attend, and a year-round gentle climate.
Many of these factors are already gone and others are declining. London nightlife and other activities were already in decline but badly hit by Covid, never properly recovering. Casual crime has become endemic in many UK cities, along with unsightly rubbish in the streets.
We came close to civil disorder in 2019 and fears of the same are now re-emerging. Talk of wealth taxes is popular. Property rights no longer seem secure. Retrospection is not unthinkable. Our private schools have seen sex scandals and taxes. Even the climate is less gentle.
In such an unconducive environment, many rich people may not need much of a trigger to leave. And once they have adjusted emotionally to going, it will often be too late to get them back.
Governments used to be very keen on the factors delivering 'competitiveness' – the attraction of high-income workers and of mobile capital. British government policy has, for a long time, apparently taken little to no interest in its impacts on competitiveness. Now we see the fruit.
