Words Dept.: entry

I keep reading that the new 50% income tax rate unveiled in the Budget on Wednesday is going to lead to a “brain drain” of which we should all be dreadfully afraid. Apparently, all the clever people who earn more than £150,000 a year are threatening to leave the country, with catastrophic consequences.

The Telegraph reports (hysterically):

More than 25,000 people are planning to leave Britain to avoid the new top rate of income tax, a leading City consultancy warned last night…

They would be expected to depart for low tax cantons in Switzerland, such as Zug.

Overall, according to the CEBR, the cost of their departure from the UK would be around £800 million a year, with as may as 140,000 jobs lost and a fall in GDP in the City of London of three per cent.

The Times, meanwhile, quotes Alex Henderson, tax partner at PricewaterhouseCoopers, as saying:

This has got to reduce the UK’s attractiveness as a place to do the kind of business that requires highly-skilled and correspondingly highly-paid individuals, whether that is people choosing to go overseas or – the hidden cost – people who never come here at all.

Clearly I’m no tax adviser (thank God). But there are a couple of reasons why such arguments don’t stack up.

Firstly, there’s precious little evidence that the previous, slightly lower, rate of tax has had any positive effect on the UK economy. It’s not as though we’ve benefited from attracting those at the top of the capitalist meritocracy with a 40% tax bracket for the last 20 years.

Figures from Income Data Services last October showed the salaries of chief executives of FTSE 100 companies averaged £3.5m, reflecting an 11.5% year-on-year increase. Enough, one would think, to stop the brain drain and protect us from the ravages of the recession. Except for the fact that the UK economy is now buggered to a worse extent than any other developed country.

Secondly, I can’t find any evidence to show that where a supposedly punitive, more redistributive tax regime does exist, it has harmed productivity. If Britain is about to suffer for taxing the rich, perhaps the Murdoch papers, the business lobby and right-wing think tanks can point us to where this suffering has happened elsewhere in the world. The reason they can’t is because, put simply, it hasn’t.

In fact, Austria, Belgium, Denmark, Japan and Sweden all have top individual tax bands of 50% or more. Meanwhile, countries where the top rate of tax is between 10% and 30% include Brazil, Bulgaria, Egypt, Estonia, Pakistan and Romania. Consequently, I’m struggling to see the correlation between low tax rates and a vibrant national economy.

If the great captains of industry want to leave, perhaps we should just let ‘em. Just as when Phil Collins and, latterly, James Blunt decide to leave the UK for tax reasons, the correct response is surely: So what?