They may not pay taxes here, but the non-doms seem to think they run the country. Last week, the Chancellor, Alistair Darling, was forced to make a humiliating capitulation to the non-domiciled plutocrats who have been using London as a global tax-haven. Attempts to get them to open their books and pay a risible fee of £30,000 for the privilege of sheltering millions in overseas earnings were shredded by their lobbyists.
The hapless Chancellor has also had to execute an embarrassing u-turn on capital against tax. He was trying to close a loophole which allows private equity barons to pay only 10% tax instead of 40% when they wind up their businesses. They had other ideas. He’s no longer the Darling of the City, and the pressure is on to have him sacked from the cabinet.
Now, I know that finance is complicated, and that peoples’ eyes glaze over when you talk about capital gains tax, private equity and non-domicile status. But the essence of this story is very simple: we have created in Britain a society in which the rich have more or less been relieved of paying tax altogether. The more you make; the less you pay.
If your are an honest British basic-rate tax payer you pay 33% tax (including NICs) or 40% at the higher rate. They pay 10% by paying themselves in capital gains rather than taxable income. You have to declare your earnings; they send them offshore and pay nothing. You pay National Insurance for hospitals; they avoid it. You have to pay your mortgage out of your net income; they use buy-to-let and deduct their mortgage interest from their tax. No wonder you can’t afford a house.
According to the BBC’s business editor, Robert Peston, the top 50 UK-based billionaires paid just £15m in tax last year on a combined fortune of £126bn. In fact, most accountants say that for the modern rich - the 4,000 Britons earning over £1m a year -taxation has become largely voluntary, because there are so many ways of avoiding even the small amount the Revenue tires to levy. The man who’s likely to take over Northern Rock this week, Richard Branson, is a world champion in offshore tax farming. What a marriage made in heaven is that is.
We live in a bizarre parody of a social democracy: a welfare state for the rich where the poor and middle classes are taxed to the hilt. There are around 112,00 non-doms in London, many living in extravagant isolation, like the Russian oligarch, Badri Patarkatsishvilli, who died last week in a fortress in Leatherhead surrounded by 120 armed guards. These people are attracted by a society which appears to value wealth above all, and which asks no questions about where it is or where it came from.
Non-doms come here to buy their multi-million tax-free houses, to launder their money through casinos and football clubs and our corrupt property system (see the reports last week on the FSA and police investigations into “endemic” fraud in British real estate). They then wind up their companies, paying virtually no tax, repatriate their earnings and live tax free. I don’t care if it’s the politics of envy. It’s grotesque.
The government justifies its tolerance of tax avoidance by saying that it benefits Britain to have all these ‘wealth creators’ come and live here. Look at all the money they spend, the people they hire, the taxes their employees pay in the businesses they create. But I’m not so sure that Labour are getting the politics right here. The most immediate impact of this unrestrained wealth has been to make housing all but unaffordable to most middle class couples in Britain.
The people who’re paying the taxes that the non doms and private equity people avoid are being priced out of their own country. Real middle class earnings in Britain have stagnated over the last decade a new class of super-salaried hedge fund managers and CEOs have captured our government. This impoverishment of the middle classes has been disguised by the boom in house prices which gave people an illusion of wealth. ‘Eating’ their houses by equity withdrawal - another name for debt.
Well, not any more. As the Governor of the Bank of England, Mervyn King, made clear last week, in an astonishingly blunt assessment of the state of the British economy, house prices are going nowhere but down for the next four years at least, while we experience “a genuine reduction in our standard of living”. This is largely because the British economy has been distorted by its subordination to narrow interests of the financial superrich.
Our productive industry collapsed as we embraced the so-called “asset economy” based on inflated house prices and colossal debt - public and private. One reason the Chancellor was trying to get the superrich to pay just a little more is because he realises that the party is over, and that - as the Institute for Fiscal Studies warned last week - the government is going to have to raise taxes and cut government spending. Yes, we will all be paying more tax, while the very rich will pay less.
What about some public equity for a change?Why is there so little moral outrage at what Britain has become? Of course, our media is dominated by the international superrich, thanks to the malign influence of buccaneers like the imprisoned Conrad Black and Rupert Murdoch. Yet, Murdoch is actually a citizen of America were non domiciles have all their foreign earnings assessed and taxed by the government. Here, it’s no questions asked. No names no pack drill. Welcome to Brown’s Britain.
We all naively thought that Gordon Brown would do something to address the shocking imbalances of wealth and power that developed under Tony Blair. How stupid we were. Brown has turned out to be the greatest defender of the non doms and the superrich. Have you heard a word from the Prime Minister of Britain as his Chancellor has been hung out to dry? Not a squeak, as always when there is trouble, Gordon has gone missing.
Yet, he could have stood behind his Chancellor, raised public awareness, taken on the plutocrats and won widespread support from the public As the credit crisis spreads, we are approaching a historic turning point in political attitudes. There is growing disquiet at the shameless wealth on display in London. At the hedge-fund Henrys, the private equity pirates, the ‘con-doms’ and the rest of the hyper-rich, cruising their gated communities in “Chelsea hearses” - huge, black 4 by 4s with smoked windows. These people are in danger of becoming public hate figures, rather like that the trades union barons of the 1970s. A narrow interest group, beyond democratic accountability, who care nothing about society, refuse to pay their dues and seem only interested in getting their snouts in the trough.
As people discover more about the crazy way the banks have been manipulating the financial system in order to pay themselves stupendous bonuses attitudes are hardening. British society is no longer in thrall to wealth. Only this time it is the middle classes, not just the working class, who are going to be taking to the barricades, as their living standards decline. Are you listening Gordon? It’s time to tax the rich.