When I heard of Nick Clegg suggestion on Tycoon Tax I thought “at last!” In a keynote speech at conference last weekend he made the point that many of the wealthiest people are not paid like you or me. Rather they draw their emoluments in the form of capital gains or set up shell companies, incorporate their labour and draw wages from there; so instead of paying the individual it becomes a business-to-business transaction which, of course, are taxed at a lower rate. Nick claimed that this means that some of the highest paid individuals are paying less than 20% tax upon what are really wages, no matter how they dress things up.
Now since the crash both Labour and the Coalition have taken steps to close loopholes but I think Nick’s suggestion is valuable for several reasons. The first one being that it provides a minimum level of taxation, no matter how many smart lawyers and accountants an individual can afford to employ. The richest will pay a fair share of their tax. This is an innovation in UK tax policy because previously relief has always been targeted, hence the ability of many to exploit the loopholes.
Now it might startle a few of you but I am now going to advocate that the minimum rate of taxation should be 35%. Why is this? When I was living in Norway (which at the time had the highest standard of living in the world) individuals were heavily taxed with personal rates of up to 60%. At the highest threshold however, at the time set at £300,000 or so, taxation reverted back down to 20% on all income after this with all loopholes being closed. The explanation was that in Sweden in the 1970s there was no drop for the highest earners who were taxed at rates above 70% and this hurt business. I too remember the “brain-drain” from the UK in the 1970s, with many of our nation’s most talented people seeking work abroad. They joined many ex-pat tycoons who chose to hide from Labour’s top rate of income tax of 83%. Statistic shows that on average people on super-earnings paid 35% tax. It is a rate that is currently acceptable to many and sets a good benchmark for all.
There has to be a balance so I would suggest this:
- · The fifty pence tax rate be retained for earnings over £150,000 and up to £500,000. The usual tax relief on pensions etc are available.
- · Above £500,000 there is a flat rate tax of 35%. No loopholes or concessions are acceptable.
One more thing I would look at is non-domicile status. At this time I understand that if one is a non-dom, if the HMRC receives £30,000 then that is that. There may be a case for Vince Cable’s Mansion Tax for such people. Otherwise I still think that the Liberal Democrat policy of local-income tax is ultimately the right way to go.
As a final thought, wouldn’t it be nice if the principle of minimum taxation would be introduced to some of our richest companies such as Vodafone and Sky?