Everybody is screaming that they want to see an end to “austerity”, and all the public services are demanding an end to the 1% pay rise cap. Whilst we all value our public services and would like to see our NHS employees, policemen, firemen etc get a pay rise, we need to remember that it all has to come out of the public purse, and the public purse is under severe pressure and has more outgoings than incomings at the moment. This is what is called the “deficit”, and the cumulative deficits become the “national debt”, which is a horrendous amount at the moment and will take decades to reduce to a reasonable level. To keep spending more than comes in as revenue is unsustainable, and will eventually result in national bankruptcy. Then there will be no NHS or other public services as there will be no money to pay for them.
Something needs to be done. Either public spending is cut, or taxes are raised, or a combination of both is needed to balance the books and any of these will be unpopular. There are a few targets in public spending that could be cut, the foreign aid budget being the prime target, with HS2 up there as well, and I’m sure that there are other projects that we can do without. Raising taxes is a different matter. Everybody is in favour of raising someone else’s taxes, so long as their own taxes don’t go up. The usual target for tax rises is “the rich”, but the burden inevitably falls on the moderately successful people who don’t earn enough to be able to move abroad and become tax exiles. A lot of the super-rich are already tax exiles and will be mainly unaffected by what goes on in the UK as far as tax affairs go. They are just spectators to our financial misery. Perhaps some way can be found to bring these super-rich people back to Britain with a tax scheme that they can live with.
I suppose that the first thing to do is to define the “super-rich”. I would suggest that this is someone with an income of £3 million or above. These are people who are likely to flee the country to avoid paying the full rate of tax, and have the resources to do so. I have no idea how many UK citizens there are in this bracket who are domiciled outside the UK, but it may be worth trying to bring them back if a mutually acceptable tax regime can be found. What I would suggest is to say to them that if they pay a top rate of 40% tax on the first £1 million, then they get the rest of their income tax free, up to £5 million, and pay only 1% on sums over that amount. This will mean that the individual pays at least about £400,000 in tax, which would not have been paid to the Exchequer if the individual had been a tax exile, domiciled outside the UK.
The case that I had in mind was that of racing driver Lewis Hamilton, who reputedly earns £20 million per year, and is a tax exile, living in Switzerland. Under the scheme I have outlined, if Hamilton came back to British domicile, he would pay about £400,000 on the first £1 million, nothing on the next £4 million, and £150,000 on the remaining £15 million. This would mean that the Exchequer gets over half a million pounds that it would not have got if Hamilton had remained domiciled in Switzerland. I would also suggest that half a million pounds is quite enough tax for one individual to pay, however much they earn.
There is, of course, a downside to this. There are probably some very high earners that are already domiciled in the UK and pay their full whack of taxes. These people would get a healthy tax break and the Exchequer would lose out on a certain amount of tax receipts from them. Before such a system was put into place there would need to be some proper research done to find out how many of the super-rich would want to return to the UK if such a scheme were in place, and how much the Exchequer would lose from the reduced receipts from the super-rich taxpayers already here, who would get a break from this system.axThis whole idea may well prove to be a complete non-starter when some serious and detailed number-crunching has been done, but anything that might raise some revenue for the Exchequer is worth looking at.