Expert View: Stop beating up middle England

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The Independent Online

There is something about tax exiles. I stumbled down the broken pathway to a miniature pleasure pavilion, complete with a scaled-down copy of the dining room at Chatsworth, and found as international and colourful a group of eccentrics as you could ever meet. There was the mondain in the safari suit, the South American on the run from five ex-wives, and our Australian host (wearing a monocle). The scene was Tangier, but it could have easily been the Caribbean, Mon-aco or even the Isle of Man.

There is something about tax exiles. I stumbled down the broken pathway to a miniature pleasure pavilion, complete with a scaled-down copy of the dining room at Chatsworth, and found as international and colourful a group of eccentrics as you could ever meet. There was the mondain in the safari suit, the South American on the run from five ex-wives, and our Australian host (wearing a monocle). The scene was Tangier, but it could have easily been the Caribbean, Mon-aco or even the Isle of Man.

Each of these individuals is a victim of an attempt by their country to extract more tax. None of them is rich - most had run small businesses - but it seems you don't have to have much to be prepared to choose exile. This was a lesson the UK learnt at our expense under the disastrous Labour government of 1974-79. An income tax rate of 83 per cent, together with tax on unearned income at 98 per cent, created an exodus of the UK's wealthiest and a "brain drain" of professionals and entre- preneurs. Crucially, the hike in taxes also led to a reduction in revenue, just as the cuts that followed in the 1980s led to an increase.

This is an experience we would do well to remember. There has been much debate about tax in the think-tanks and wine bars of Westminster this summer. If anything, the dangers are even greater now than in the 1970s. Increasingly, countries are competing to attract the talented using tax as a weapon.

In terms of top executives' net purchasing power, Hong Kong ranks No 1 thanks to a top tax rate of 13 per cent. Even in Europe, home of high taxes, most talk of reform concerns reductions. Russia recently cut to 13 per cent, and saw a 28 per cent increase in revenue. Germany is also proposing cutting the top rate from 48.5 per cent to 42 per cent.

A return to the "politics of envy" in this country could do serious damage. The mooted £50,000 threshold for a new super tax would capture many ordinary workers. With the average London home now costing £230,100, a £50,000 salary barely covers a mortgage.

The levellers should stop beating up middle England and turn on the real rich. Already, 3.3 million people pay higher-rate tax. At the same time, the tax-management industry insures whole swathes of central London are occupied by the tribe of "trustifarians" living off inherited, tax-protected wealth. And then there is the "non-domiciles", a group of tax-free super-rich, estimated at about 65,000, who live in the UK but tell the Inland Revenue that "one day" they will return abroad. As such, all their income and savings offshore are completely tax free.

The Treasury estimates it loses £8bn by not taxing this group, so Gordon Brown is getting tempted. Opponents claim non-domiciles bring much wealth and business to the UK (the Greek shipping industry is famously run from London). They even point to the amount this group spends on property and in restaurants and boutiques.

Oh, come on. This sort of argument applies to anyone. Plenty will stay in London because they like the lifestyle and find it a good place for business. Anyway, the Revenue can't lose what it doesn't have. Non-domiciles manage their affairs so that hardly anything comes into the UK. Losing part of this small sum must be balanced against gaining more of a much greater one (ie their ex-UK income). It is the exact opposite of why we must avoid a super tax on middle England, where there's an awful lot to lose.

Taxation should be fair, compulsory, and as low as possible. Much talk this summer is in danger of breaking all three rules. The rich will pay nothing, entrepreneurs de-camp and revenue shrink. That means you will pay more.

Christopher.walker@ tiscali.co.uk

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