The new brain drain?

Some of the UK's top earners are already hinting they may quit the country as tax rises. How serious is the threat?

Sunday 23 October 2011 07:01

Sir Martin Sorrell, chief executive, WPP

This tax change has irritated quite a few people. The odds are that some will move, but it will not necessarily be the established high earners – it will be the graduates coming out of business schools. The impact will be clear as younger talent looks to their medium-term careers. The advertising industry is dynamic and mobile. The tax, amid other financial factors, will affect younger people more than in many other industries. They are much more likely to look to move to other markets. However, I certainly won't be leaving the UK. Not yet, anyway.

Theo Paphitis, retail entrepreneur

He [Mr Darling] is going to get back very little. It is purely a political move. If he was my finance director I'd be questioning why I would keep him in the job. He gave no help to small businesses. Small firms employ the majority of the workforce, and one in five household incomes derive from small businesses, so they are by far the quickest at absorbing labour. It [the Budget] was a three-card trick. If I was him, I would be embarrassed.

Kate Bleasdale, Founder, Healthcare Locums, entrepreneur of the year 2008

It is complete rubbish to suggest that an increase in the top rate of income tax will cause a brain drain. If some 50-odd-year-old has-been wants to leave and make way for younger entrepreneurs with better ideas, then let them go. It took me 25 years to earn £150,000, and, for the first five, I paid my nanny more than I was taking home. Being an entrepreneur is about seeing opportunities and taking advantage of them when things are difficult. I cannot see the top rate of tax making the slightest bit of difference to those who are genuinely looking for new opportunities.

Sir Tom Hunter, founder, West Coast Capital

I am against that [50p] band of tax. The way you get out of this recession is people starting businesses and taking on people. So if this is a tax on enterprise it is a very bad thing. What if people decide not to live here? It is only a short flight to Monaco. Capital goes where it is lower cost. By the way, I am not leaving – I like living in Scotland, despite the weather. There is a mood in the country to tax fat cats, but that is just 1 per cent. The rest are hard-working business people.

Jon Moulton, founder, Alchemy Partners

This is an ill-judged political gesture that will have a bad impact. The rise in the highest personal tax rate will lead to people leaving the country and deter others that had considered coming. I have spoken to several people who are now considering whether or not to stay. It is a bad message to business.

David Bramhill, founder, Nighthawk Energy

By the time you have sold up and moved, it might cost you three times as much, but it is the principle. This is a tax on doing well and it is bound to send people abroad. If I was an entrepreneur in my 30s, just starting off, I would certainly think twice about where to locate myself and my businesses.

Simon Walker, hairman, BVCA

International business can locate anywhere, and, as the UK now has the highest top rate of income tax of anywhere in the G8, people will locate to other countries. What worries people most is what is there to come? The top rate of tax was lifted last year and again in the Budget. What is next – 70 per cent, or higher?

Simon Denham, founder, Capital Spreads

The new tax regime certainly makes one consider whether relocation would be the best option. However, such moves are likely to be medium to long term. A 50 per cent tax will not immediately lead to an exodus, as we have a year or more to do something, but it will hardly aid businesses trying to recruit from abroad.

The pips squeak When tax was really high

Alistair Darling's Budget raid on high earners may have prompted references to the high-tax years of the 1970s, but marginal rates have some way to go yet before they reach the levels that prompted the original UK brain drain.

Under Denis Healey, the Labour Chancellor of the mid-Seventies, there were 10 different rates of income tax, including a 35p basic rate and an 83 per cent top rate on earnings over £20,000. And then there was a 98 per cent tax band for investment income.

That was enough to encourage some high earners to quit the UK for less punitive tax regimes. Stars from showbusiness made big headlines: Rod Stewart quit the UK in 1975 after a row over tax, for example, while the Rolling Stones spent much of the Seventies outside the UK for, in part at least, tax reasons.

However, it was an exodus of other types of worker that really worried policymakers – in particular, the number of scientists quitting the UK rose sharply in the early Seventies, though this was a trend that began in the 1960s, with America's higher salaries attracting many.

Tony Benn, then the industry minister, was so concerned he made trips to American universities to appeal to British students studying overseas to return home on graduation.

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