Why Nick Clegg is Right about a Tycoon Tax

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?

Just received my pay slip and seen my tax go out....you’re welcome Britian

The title of this blog is actually a tweet by chrisjw133 and I am grateful for the inspiration because he just reminded me why we pay our taxes.

As some of you may know already, I work in the oil industry.  Okay, I can hear to booing from here but somebody has to do it as it: at least for the time being it is the basis of our global trade and economy. I look forward to the day when this is no longer the case but I digress.  One of the benefits of working in this industry is the travel.  It is a fact that people like me see places that only come into wider focus in times of disaster or political unrest.  For that reason, I am glad that places like Angola has fallen out of the headlines and when I mention Mauritania, most people have to ask where it is.  What such places have in common however, is either low taxation or a tax system that is easy to evade.

For instance, when I worked in Egypt, it reminded me of nothing more than a giant building site.  Why were the houses unfinished?  At the top of many residences the steel that reinforces the concrete is clearly visible but the buildings are obviously occupied.  The answer lay in tax avoidance.  Apparently property tax is not payable until the building is deemed complete.  The tax is not based upon occupancy.  The outcome is that roofs remain unfinished.  Don’t tell me that the Egyptians are stupid; of course they are not.  It is just that the government has colluded with the population to reduce taxation.  It is their decision whether they want their country to look like a tip or not.  Or is it?

 In many such places the general population are not encouraged to engage in politics beyond attending the often mandatory rallies.  One such instance I personally witnessed was Equatorial Guinea.  EG, as it is usually abbreviated to, is a popular destination within west Africa for immigrants and this is despite being a dictatorship and having higher tax levels than its neighbours.   I asked some people why they had settled in EG and they told me that compared to the countries they had come from, EG was better run and that ordinary people had some chance of seeing the benefits from the nation’s wealth.  Certainly while I was in Port Harcourt there was a lot of infrastructure building going on.

It is easy to forget the benefits of taxation.  In Uganda for example, education has to be paid for; denying vast numbers of the population anything beyond the most basic levels of literacy.  There is an alternative for them however.  If the poor were to join one of the many different religious groups that are flourishing in the nation, they have  chance of getting their children educated for free.  It doesn’t matter whether it is the one of the Christian or Muslim traditions: most have representation in the country.  I was very impressed by both the grand (and recently built) Sunni and Shi’ah  mosques that are to be found in the capital Kampala.  Liberals like us are then up in arms when the Ugandan parliament, with popular support, propose to introduce the death sentence for homosexuality or when in Malawi sentences the unfortunate men Steven Monjeza  and Tiwonge Chimbalanga to fourteen years hard labour for wishing to marry each other.  After all, who do you think are teaching the bulk of these populations?  It is for such reasons that I welcome the Liberal Democrat and Conservative policy of raising international aid to 0.75% of GPD, despite the straitened circumstances we all find ourselves in and would encourage other rich nations to uphold promises that they have already made. 

Of course it is not just places like Africa I see these things.  The problems are the same across the developing world whether in Central America or parts of Asia.  Colleagues of mine live in low-tax regimes, residing in beautiful houses behind their walled compounds and armed security.  I’m not casting blame; they are merely taking advantage of the opportunities that life has presented them with.  For me though, I prefer to pay my taxes and live in north-west Europe.  Here we have the schools, the hospitals, clean water and food, the houses, roads fit to drive modern cars upon, train and air travel, relatively low levels of crime, and cheap communications.  Not all of these are paid for out of taxation but far greater numbers of people can enjoy the benefits of such things because most people do pay their taxes and that the Inland Revenue is free from corruption.  That is why fair taxation is vital to a nation’s wellbeing and the fairer the taxation, the greater the general benefit.  I welcome the Liberal Democrat input on capital gains tax for example.  Buying a flat to rent is a form of speculation and thus it is only fair that a person who starts a business up from scratch and sells it upon retirement, who has risked much and employed others, has a better deal than somebody who just hopes to benefit from the next property boom.

There is a flip side to high taxation though.  The government is responsible to me and you, dear reader, for spending our money.  Hopefully this new parliament is acutely aware of this on an individual level but, more importantly, on the grand scale too.  The past ten years has seen billions of pounds wasted on invading other countries.  Trident should be included in the latest Strategic Defence Review and, in my opinion, scrapped altogether.  Hospitals have thankfully seen cases of superbug infections fall but this was only after misplaced privatisation of cleaning services in the NHS was re-examined.  Thousands of deaths should have been prevented by ensuring basic standards of cleanliness that were laid down over one hundred years ago.   Many PFI schemes are not getting the scrutiny that they deserve.  Despite all the subsidies being paid out, how many of us are really satisfied with the state of our railways?  I could go on and on.   

The point is though I just got my tax bill and you really are welcome to part of my earnings Britain.  Spend our money wisely though, because the British people are looking to see where the money, our money, is going.