It’s a done deal – just about. Down at the bookies, you can get 14/1 on a Tory majority at the next general election, while betting on Labour to win, the odds are a measly 1/6. If you need any more confirmation that Labour will form the next government, just listen to the clamour of the wealth advisers telling their high net-worth clients that it’s time to pack their Louis Vuittons.
It is tradition that as a Labour government heaves into view, a noisy and obnoxious handful of the super-rich threatens to quit the UK, taking all their treasure with them. “Labour is coming for your wealth – here’s where to escape their taxes,” says yet another Telegraph fright-piece on “options for worried middle-class earners”. Middle class? The article goes on to discuss VAT on private school fees (attended by just 7% of children) and non-dom tax (68,800 people claim non-domiciled taxpayer status in the UK). The Tory press uses “middle class” to describe the top few percent, ignoring that the actual median UK income is £34,963 – hardly non-dom territory. But it’s politically convenient to pretend Labour is coming after any homeowner, any tax payer, or anyone with an Isa, disguising the wealth of the super-rich under the cover of general middle-classness.
In WealthBriefing, the “publication of record for the global wealth management industry”, a private wealth manager warns that her clients will be off. She says: “As the Labour party is looking to abolish the non-dom tax regime, other countries are seeking to attract new immigrants with favourable tax regimes … many will go.” And of course, here’s the kicker: “It is essential to get legal advice early, to plan the move and navigate the immigration, tax and lifestyle hurdles of migrating to their new country.” Labour may swear blind there will be no income tax, national insurance or capital gains tax rises, but advisers drumming up business like to warn that the shadow chancellor’s assertion that “we have no plans” for other taxes, hides untold Labour horrors. Spear’s, the wealth management and luxury lifestyle magazine, reports: “‘Fire escape plans’ are being drafted, alternative jurisdictions considered, and tax relief schemes discussed.”
Here’s a salutary tale from the multimillionaire Guy Hands, who founded the private equity firm Terra Firma. In 2009 he bolted, making maximum noise about it, in fear of Labour targeting wealthy investors, as Gordon Brown struggled to cope with the financiers’ crash. He chose Guernsey, with its flat 20% income tax rate and zero capital gains tax. There was mockery as he left his wife and children behind, instructing them to come and visit him. But full marks to him for admitting it didn’t end well. He wrote recently: “Moving to Guernsey greatly impacted my ability to build and maintain strong relationships with contacts, on which my success in business relied. I lost the flow of the market and ultimately I was never able to raise a blind fund again. Deal-making and fundraising is best done face to face … I also lost connection with my team.” He added: “For me it was a disaster.”
Private equity is using all its firepower to intimidate Labour out of its plan to abolish the “carried interest” loophole, which lets private equity executives describe their income as capital gains, incurring less tax. Hands has tried to frighten Labour into backing down, writing in the Telegraph that “although by some miracle the UK has largely retained the [private equity] industry post-Brexit”, EU cities “are actively vying to tempt people away from London with favourable tax regimes”. Yet he still urged fellow private equity barons to heed his experience, warning: “If tax goes up, while private equity executives may see themselves better off elsewhere on paper, they risk becoming estranged from their business ecosystem.”
Against that backdrop, the FT reports that Labour is under pressure to water down its private equity reform. But reneging on yet another policy after backing off the £28bn-a-year green investment would be a serious error: capital gains tax needs to be levelled up to more closely align with income tax, as recommended by the Office of Tax Simplification. This loophole helped cause capital gains to almost triple in the last decade to £65bn: today’s research from Arun Advani’s economics department at the University of Warwick shows just 0.5% of people had a capital gain last year. One neighbourhood in Kensington earned more in capital gains than Liverpool, Manchester and Newcastle combined.
Taxes will rise whoever wins the next election, says the FT - because the spending cuts Jeremy Hunt has left for 2025 are impossible. YouGov finds most people expect it. But the mega-rich are right to fear that Rachel Reeves’ abolition of their many loopholes will mean vertiginous tax rises for them. If she cleans up the tax havens, there will be fewer places to hide themselves or their money.
Will they flee? They are not as mobile as they pretend, with families, friends and roots that resist being dug up. Besides, tired of London, tired of life, and they fear getting very bored in these “culturally barren” tax havens, finds Sam Friedman, a professor of sociology at the London School of Economics. His team interviewed a raft of the top one-percenters and found not one planning to make Guy Hands’ mistake.
Attitudes towards tax are changing, with the demise of Thatcherite small-statism. The British Social Attitudes survey found that 52% of the public are in favour of higher taxes. Listen to the Confederation of British Industry and serious businesses these days call for infrastructure investment, not cuts. Patriotic Millionaires may be a progressive vanguard, but its maxim is influential: “The country deserves proper investment; what better way to do this than through taxing the richest people?” Hunt will squander public money on tax cuts that are not on voters’ agenda.
Labour has little to fear from sabre-rattling wealth advisers, though one of the very richest people most likely to flee after the general election is the prime minister himself.
Polly Toynbee is a Guardian columnist
