It makes me smile when a grand new book hits the stores proclaiming a supposedly startling new point of view. One of the oldest refrains has been that Britain is run by a clique of super-rich, well connected folk. Robert Peston, a senior BBC journalist who is probably best known to the British viewing public for his jerky speaking voice (how the f**K does someone with such a manner hold down a TV career?), has written a book which, I summarise thus, complains that Britain is ruled by rich people; they are too rich, should not moan about things like high taxes on non-domiciled residents, should therefore pony up their wealth and be a good citizen. So there!
About as original as a BBC drama repeat on a Monday night, in fact. Peston argues that the wealthy, global elite who can supposedly flit around the world seeking the lowest tax regimes, should jolly well stop being so, well, selfish and pay the same taxes as the rest of us. But he gets the argument totally the wrong way round. The vast majority of the population should pay much lower, flatter taxes, so the rich will not need to act in this way. Problem solved, Mr Peston.
It is the existence of great mobility, of the ability by the rich to find the cheapest tax destinations, that acts, however imperfectly, as a check on the ability of socialist and other high-taxing governments from putting up taxes even more. Why do statist organisations like the OECD and others, for instance, bleat about the existence of more than 40 tax havens like the Cayman Islands, the Channel Islands or Monaco? Do you, dear reader, honestly think that they do so out of a fear about criminals stashing away their ill-gotten gains? Of course not. They are worried about “tax leakage”. If you are a leftwing politician or some other brand of political looter, you are not obviously very happy if a lot of people prefer to avoid having their wallets lifted.
Peston’s books has its interesting features: he writes about the rich businessmen who supported Blair, for example. But to be honest, even this is not terribly original. As long as politicians have the powers they have, control the budget spending that they do, then businessmen will have an incentive to try to carve out what benefits they can for themselves. Back in the 18th Century, the complaints of Peston would have been wearily familiar.
Ultimately, if we worry about the influence of rich people over public affairs, the solution is to shrink the state, so that filthy rich can do what they do best: making shedloads more money by providing others with goods and services that other people want, rather than engaging in political rent-seeking. And Peston need not worry, as he does, about children of the rich making a mess of their lives by inheriting “too much”. If governments did not interfere with trust law as they have, then rich parents could stipulate how and when their offspring inherited and spent money, assuming they inherited at all. If some of the children of the rich do mess up, well, so long as the British economy remains dynamic and embraces outsiders with talent, Mr Peston need have nothing to worry about.
For a multiple award winning journalist, this is not a very impressive book. I am afraid I have to give it a “D”.
No, it acts to encourage them to put the tax burden on poorer, less mobile people. Instead of high income tax, you get lower income tax and escalating taxes on everyday goods.
Ian B.
Actually “the rich” pay a bigger share of tax in Britain than they have in many decades.
“But that is not true in the United States” – actually it is true there as well.
There is no such thing as a fixed tax burden.
This would assume that governments do not increase their spending – but they do increase it. Vastly increase it, and taxes go up to try and pay for this increased government spending.
If you want to reduce the burden of taxation on the poor then reduce government spending – now at almost half the entire economy.
Do not engage in fantasy about how the burden of taxes on people is due to rich people not paying “their share”.
Almost needless to say – David Cameron and “George” Osborne show no sign of understanding any of the above.
No doubt there will be people who do not understand how the cuts in the top rates of income tax by Mrs Thatcher and Ronald Reagan led to the rich paying a BIGGER share of taxation – but I am not being paid to educate such people.
J.P.
“a multiple award winning journalist”.
Given who decides who gets most of these awards, this may well be a badge of shame.
If you were a foreigner living in the UK earning a salary, then the implication of the non-domiciled tax break was that you paid tax on your salary (top rate 41% including NI) and you paid tax on your spending in the UK (17.5%) through VAT, but you did not have to pay tax on income on investments, because you could domicile them in the Isle of Man or Switzerland or somewhere like that. The number of foreigners living in the UK in recent years has increased and so has knowledge of this tax exemption, and the number of people taking advantage of this has been increasing considerably. In practice what this has meant is that the tax break gives you a small saving relative to domiciled people at the beginning of your career but quite a large one as you accumulate assets. My assumption is that the change in the law is not due to the “super rich” not paying taxes at all, but due to the treasury noticing that the tax base on middle class salaried people has been eroding, and wanting to stop it. (The fact that the new rules only apply for people who have lived here for six years strengthens this argument – that’s about how long it takes at the start of a career for the tax break to really be useful).
The consequence of all this is that London has suddenly become a much less attractive place for such people as foreign finance sector workers. One consequence of this is that such people as hedge fund managers are going to decamp to Dublin in large numbers. (Ireland retains the old British law). And from a taxation perspective it makes London much less attractive compared to places like Singapore and Hong Kong. Previously the situation was that taxes in London were high but the nondom tax break made it just about tolerable for finance sector workers to live here. Now the situation is much worse. Seriously, compare with Hong Kong, which has an income tax rate of 16%, no VAT, and no taxation of foreign derived income.
(I am a foreigner who works in the financial sector on London so this does, of course, all apply to me).
Paul, I didn’t say any of the things you seem to be implying I said by answering them. I said that effectively the government have shifted from direct “penalising” taxes on the rich, to greater taxes on everybody. I guess most libertarians support that, they seem to AFAICS, but me I’ve never understood why it’s “fairer” to tax bread and beer than income. What it does do is make it more difficult for people to see how much the thieving bastards are stealing off them.
Ian B.
I repeat that when the top rates of income tax were cut it brought in MORE REVENUE over time.
In short there was no shift from “the rich” to “greater taxes on everybody”.
By the way I do not support higher taxes on bread or beer. Nor does any libertarian.
Nor is this recent shift in my position (done to debate you). For example, I opposed the increase in sales tax (not on “bread or beer” but on many other things) by Howe back in 1979.
And I was only 13 years of age in May 1979.
Like many (very many) other people I guessed that it meant that Howe was not going to try and reverse the increase in government spending promised by the out going Labour party government (on pay, “winter of discontent”, and other stuff). It was this vast increase in government spending (which the B.B.C. called “cuts”) that made the recession in Britain from 1979 to 1982 so much worse than it was in other nations.
The increase in government SPENDING is the problem – not some mythical move away from taxing the rich.
But, doubtless, you will not understand any of the above – any more than the first time I typed it.
Have you considered becomming an academic?
After all if Paul Krugman is considered a “top economist” why not you?
I would guess your knowledge and intelligence is far greater than his (not that this would be much to boast of).
Have you considered reading what I said before having a go, Paul? If you look very hard at the words, a meaning will present itself. You’re rather rudely attacking me for what you imagine I said, rather than what I actually said.
Thanks for your attention in this matter,
Regards
Paul,
You are correct that for high-income bands, tax revenue increases in proportion and absolute amount with decreasing tax rate, but that isn’t what Ian is talking about. He is discussing the lower-income tax bands, where the population does not have the same mobility. He was pointing out that while mobility acts as a check on how high socialist governments can set the highest band tax rates, it does not have the same effect on lower bands, and hence can’t be said for taxes in general. The government can increase tax rates of a sort paid by poorer people who cannot move around, and so this can increase revenue. Total revenue being maximised when the rates are set low for the rich and high for the poor.
I can’t comment on whether that theory is correct in the sense that rates in lower bands could escalate – I don’t have the figures – but I think that’s what he means, and I agree to the extent that if they are limited it’s not by the mobility effect. There are other effects besides mobility that act to limit feasible tax rates in the lower bands, the most obvious one being that if you redistribute too great a proportion you impoverish the economy, having taken a wider slice of a much smaller pie, which reduces total revenue. I can’t say whether taxes are yet at that point – whether increasing the rate for the lower bands would increase or decrease total revenue. It’s an interesting question.
Interesting discussion, but a little behind the times when it comes to taxation of lower-income people.
Modern government has invented the idea of voluntary taxes. Thus, low income people are given the benefit of low tax rates on their first tranche of income, at the same time as they are offered the chance to become high income people through lottery tickets. Poor sods pay their taxes, & smile while they do it.
It is a little like the situation with US Federal Taxes, where too many people view a tax refund as a gift from the government — not a return (without interest) of money that should never have been taken from them in the first place.
Michael,
I thought you lived on a 767, judging by the piccies.
Now all of this doesn’t apply to me but I do have a question. Let’s assume I’m a non-dom and I have a wad of investments outside the UK. I am I right in assuming that those investments are complying with the tax code of the state in which they reside. If so, isn’t UKGov charging on them a case of double taxation? You know in a similar way that they charge you on your earnings, then your pension and finally on your estate.
A final question to all you economists out there. Last I heard, UKGov consumed 47% of UK GDP. How accurate is that figure? How accurate is such a figure in general and how easy is it to compare between countries?
I am a economics dunce. So forgive me if I have framed those questions poorly. I will say one thing for economics though. It appears to me (my first lesson was from a Grantham shopkeeper’s daughter) that it is the one branch of knowledge where common-sense works rather well.
I am somewhat surprised that there hasn’t been an SI post on the plans to take all of our DNA. I can only suspect that Dale is helping the USAF with their enquiries in Guam, Perry is hung-over and Guy is catatonic with rage.
Preston does however raise an interesting point.
A lot of rich people supported Blair; lots of hedge fund managers support the democrats. Why?
Well part of the problem with third way/ holistic socialism is the belief that every one is included in the deal – a shareholder has as much worth as a coal miner etc.
Hence Northern Rock – where the government committed huge sums of tax payer money to create a private sector solution that would help the workers and the shareholders. Its hard to see how this would have happened under either a very right wing or very left wing government.
So what Preston is saying to the rich – say the Northern Rock hedge fund managers – is simply – if you want to support and benefit from third way socialism then you’ve got to pay for it just like any other worker.
To which the rich will simply reply f’off – their relationship with the third way was commercial not political . So the end result is a bit more honesty in politics – fewer champagne socialists.
Ian B. said that government had “shifted” from “higher taxes on the rich” to higher taxes for other people. In short that the rich now pay less in relation to other people.
As the rich now pay MORE than they used to (in money terms, real terms, and as a percentage of total taxation) what Ian B. said was false.
The aspect of all this that I have found so fascinating over the years is the utter inability of the statist/collectivist mentality to ever consider the obvious solution to the “rich, mean people are corrupting the politics of our society”—reduce the importance, scope, and power of the political in the functioning of society.
No, their response is, inevitably, that the “good guys” muct immediately organize and seize control of the political apparatus in order to punish the evil corrupters and save society for the common good.
In small questions as well as large, the only possible solution to any and all problems is—more state power wielded by just the right, caring, wonderful people, who only do things for the best, even when it hurts.
It only hurts because you just don’t understand…
JP and veryretired, it is so refreshing to hear this. I mean, I already know that the solution to corporations buying the government (which has power to unfairly help those corporations) is to decrease the government, so that no one will want to buy it. It will return to its original function. But the statists never see it this way. It’s just reassuring to see that some people, however few, still agree.
Paul,
“Higher” taxes can mean all sorts of things. A higher tax rate, a higher total revenue, a higher proportion of the overall revenue, or a higher proportion of an individual’s disposable income. (Or knowing government statistics, a million other convoluted, inflation-adjusted possibilities.) As you correctly point out, setting a higher rate does not imply a higher total revenue. I think, based on my guess as to his thinking, that he meant rate. It is perfectly possible for a government to increase the rate of taxation on alcohol, fuel, tobacco, etc. and for this to be describable as “escalating taxes” without saying anything about the total, or the balance between rich and poor. It is possible to say that this is putting a burden on the poor, interpreting “burden” from the victim’s point of view rather than the taxman’s, while at the same time an even greater financial burden is shouldered for other reasons by others.
The language used in ordinary conversation is often vague, and people often say things that, parsed precisely, they didn’t actually mean. People naturally fill in the gaps, and sometimes fill them in wrongly, and then can’t understand why the people they quote object that they neither said that nor meant it. Mathematicians perhaps notice it more than other people, but we learn not to make a point of pointing it out too often.
You say:
“Ian B. said that government had “shifted” from “higher taxes on the rich” to higher taxes for other people. In short that the rich now pay less in relation to other people.”
That deduction in the second sentence doesn’t follow. He is saying that the government has shifted policy, not that it has shifted the revenue tax burden. To fill in the gaps: that the government, when it wants to put up taxes, has shifted policy from applying ever higher punitive tax rates to the rich to a policy of introducing higher tax rates on goods and services that everybody uses, but which make up a greater proportion of the poor’s disposable income, (and that as the poor do not have the same mobility to escape it, the originally proposed mechanism for limiting Socialist taxation does not limit). If the Chancellor puts up fuel duty, people do not all stop commuting to work or buy their fuel in France where it’s cheaper or switch to electric cars. No, individually (and presumably collectively) they pay more fuel tax. That particular tax rate has gone up, and assuming the Chancellor isn’t an idiot, is providing the Exchequer more money than it would have got if he hadn’t, all other things being equal. That this implies that the rich pay less in proportion to the poor does not follow.
(As it happens, the UK tax rate on fuel as a percentage of the price has gone down lately, from about 82% a few years ago to 68% so they say, but that’s another issue. As I said before, I don’t necessarily agree with Ian, but I do think he’s saying something else.)
Seriously, if you want to nit-pick any further, then you need to first insist on defining terms and specifying sources for all the statistics precisely. But this being armchair blog economics, even as a mathematician I would regard that as being unnecessarily academic for casual conversation. We’re all supposed to be among friends here!
Robert Peston is the BBC’s business editor, in the post formerly occupied by Geoff Randall (who was/is more friendly to the rich). Peston’s previous book was Brown’s Britain an encomium to Brown seen as the left’s hero coming to replace Blair with some Old Labour principle. So we should not be much surprised that he is now continuing a similar narrative.
Meanwhile, the pleasant, logic-friendly, Evan Davies has been promoted from economics editor (where he was a quiet, accurate, counterweight to the prevailing Bononomics), to presenting the Today Programme.
It seems I have misunderstood Ian B.
I apologize.
It seems that what he meant was that as well as reducing the top rates of income tax IN ORDER TO GET MORE REVENUE, the government has also increased other taxes.
For example, the introduction of V.A.T. (our complex form of sales tax) in 1973 (by E.E.C. order) and the near doubling of the V.A.T. in 1979 (from 8% to 15% in line with Howe’s wish to bring our level of V.A.T. in line with other members of the E.E.C.).
I fully accept that government has increased other taxes.
My point was only that “the rich” now pay a bigger share of income tax than they used to. And that fear of rich people going overseas was NOT the primary reason for the reduction in the top rate of income tax in either Britain or the United States.
Of course in the United States rich people continue to pay American income tax even if they go overseas – and there is no Federal sales tax anyway.