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The Conservative Tax Naivety

Latest Conservative ideas on tax are to give away £3.5 billion by raising the Stamp Duty threshold on property purchase to £250,000 and through an increase in the level at which Inheritance Tax begins from £300,000 of assets to £1 million. Sound good? So far. But there is a lot of uncertainty about the figures: many commentators have cast a lot of doubt on them.

So, where’s the money coming from? Shadow Chancellor George Osborne says “we will charge a flat annual levy of around £25,000 for those who register for non-domicile status.” These people currently pay income tax on their UK earnings, but not on their foreign earnings. He expects them of course to want to remain here and do nothing to change their situation. But let’s face it, if you were threatened with a sudden increase of £25,000 to your tax bill, and you were living in a foreign country, would you do nothing about it?

A lot of these non-domiciled foreigners living in the UK are often middle managers, people working for foreign companies such as BMW in Oxford, Honda in Swindon, Toyota in Geordieland, journalists on assignment from their home countries. Teachers of the foreign languages we need to learn to export more British goods overseas. Health service workers like Doctors, Dentists, Nurses. Plumbers. Ordinary people. Middle class people. People like you and me.

These people will in some cases just leave the country. The skills and talent they take with them could create a new ‘brain drain’ out of the UK, not this time to the USA as happened in the 1970s when the 83% and 98% Super Tax pushed them out, but to Europe thereby enhancing the already popular flow of people there where salaries tend to be higher anyway.

UK Employers will suffer too. Where will they get the people now working in the bars and hotels of London in jobs few English people want to take because of the low salaries? Companies thinking of which part of Europe to move to will look again at the attractiveness of the UK as a site for their “Big European Projects” and in some instances will decide our competitors deserve their billions and jobs more. The UK will slip down the league of International Competitiveness.

Imagine you get a plum job in Holland or Sweden, something that will enhance your chances of promotion when you return to the UK after your 3 years overseas stint, something that pays you an extra £20,000 a year too. Would you still take it if you knew the tax charge for doing so would be £25,000?

Now think how a foreigner in Britain, or considering coming to Britain, will take it. For them, they may still find the job attractive, but not enough for so many to want to come as financially it would not make sense for their family to come with them. As an International Commuter you would pay no UK taxes at all! This means the money those workers now earn, pay taxes on, and spend in the UK would only be earned here, but taxed and injected into the economy of the country from which they commute.

If you are thinking “Hurrah! We’ll get rid of all those illegal immigrants – think again. The levy only applies to those registered as non-domiciled: illegals don’t do that. This change would just make more of them, not less. Without any system of registration or ID card, who would ever know where they were?

Economically this whole idea doesn’t work. That’s why the Labour Party never actually did anything about it. Once you look deeper than the attractive headlines you see the lack of forethought behind the plan. Politically it will appeal to BNP members and other right wing groups, but it is a fundamentally flawed idea.

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One comment on “The Conservative Tax Naivety

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