There was quite a fuss about the British budget budget yesterday especially because non-domiciled (non-doms) are going to face a 30k sterling levy, there is a fear (it is not certain whether it is real or supposed) that this will ultimately cause a ‘brain drain’ on the country and cause much of the foreign talent to flee to other places rather than pay a hefty fee.
This levy was only brought in because there are so many highly paid talents are living in the UK virtually tax free, and the likelihood is that they are not paying tax where ever they are domiciled. For the highly paid exec’s they can threaten to leave but they won’t. leave and go where? London is to finance what Rome once was to the empire, if you leave you’ll be paid 30k less to do more work in the new place. The outcry is purely from those whose vested interests may be hurt. Irish tax dodgers tend to be simple in their approach, you don’t pay and then when you are audited you get fined and dragged through the mangle, sometimes they even use an offshore vehicle, that’s what the Ansbacher accounts were, the wizards in London city bring it to a whole new level using trusts, complex domicile laws and special vehicles to make themselves untouchable by the inland revenue, all legal and all very vexing for the chancellor of the exchequer.
So for the Chancellor of the Exchequer the answer is to just tax Non-Dom’s, and that is (although a dirty government move by any account) is the only way of getting something from this elite sector without having to go through a reform of the entire constitution because the complex structures would fall into too many categories, domicile law and residency are one area, taxes and finance are another, contract, international taxation etc. would all have to change, easy route? non-dom tax, a kind of sawn off shotgun approach, highly effective, not too accurate or well thought out.
London Banking has been tarnished lately with the Northern Rock debacle, it has hurt the greater financial services industry, it was the first outright run on a British bank in over 100 years, British banking is the defacto emerald in the crown of Britain because London is the undisputed banking and money capital of the world, New York might have the stock market but the serious contenders ultimately end up in ‘the City’. With Northern Rock the government stepped in and nationalisation is making London look bad.
This will raise concerns over the effect or more-so the effectiveness of their regulation and transparency environment. it may hurt London in its ability to attract talent. Angela Knight – British bankers association CEO – said that ‘in the new budget there was an absence of consultation, there is no intermediary between industry and government’, in fact we are sorely lacking anything of this sort in Ireland as well. As a greater question, lets imagine that there is a brain drain on the city, where are they all going to run to? Perhaps if Dublin had a more attractive environment and the structures there to support them they could come here, being only an hour away by air.
Supporters of the non-doms say that they are not out there taking the pi$$, they are taxed on UK income the same as anybody else, its just the income they earn elsewhere that they are immune from, the actual way this can work though is that a person from another country sets up a company and goes to work in the UK, the income they earn is paid to the foreign company not to them directly in the UK. so then they don’t have to pay tax, now lets say this company was set up in Nevis, or Antigua? then it is something that boils down to total avoidance and borderline evasion. So if you are a non-dom in the city then what is to stop you from living and enjoying the standards and benefits of London life but on the other hand not contributing in any way to the greater good of that city in a monetary sense? to say that this new tax will cause a brain drain is in fact saying that all the brains in London are tax-avoiding experts who have no local connection or requirements, the genuine cases will make an appropriate economic decision.
Dubai, Shanghai and Singapore are the only places people might turn to but there is a problem there, Dubai is an Arab nation, they don’t treat foreign workers well, women don’t have equal rights and if you look at the 200 car crash there the other day it shows that even with excellent infrastructure that the place is a mess. Its also far away from everywhere, if the middle east has its Internet cut again they are on an informational blackout. the action may be available there but its not ‘where its at’. Recently the biggest scandal in the Arab world was a Saudi women on youtube who had the audacity to get behind the wheel of a car, jeez, imagine that! Granted Dubai and Saudi Arabia are not the same nor are they run the same way but there is definitely an ‘Arab culture’ the same as there is a European culture and that tells you a lot about what to expect, indeed Dubai didn’t come out and denounce the fact that women can’t drive in Saudi Arabia and that alone shows you where they pin their colours to the mast.
It’s important to remember that people felt at the time of the euro introduction that financial services would move to Paris or Frankfurt, but that never happened, culturally and in terms of being close to the rest of civilisation Dubai doesn’t stand a chance, good luck to them with their property bubble and ambitious engineering ideas but if its a choice of living there or not? No thanks, you can keep your patch of dessert thanks.
Shanghai is in China, again, far away from the western world, Singapore at the southern tip of Malaysia is uniquely Asian, and although emerging markets are certainly where gains have been made in the last few years it doesn’t mean you have to be there to enjoy the fruits of it, Chinese/Asian culture is so vastly different that to live there you need a certain attitude or personality to begin with and the folks who enjoy good British society might feel some degree of comfort in Hong Kong, but you can bet they will be totally out of sorts in Singapore, as well as that things in Asia are not looking overly attractive, there is a property bubble forming there, the REITs in Singapore are taking tremendous hits, the inflation in china is at an 11 year high and there is no rational plan to stem this, the Chinese government came out with a law forbidding retailers to raise prices (even if they have to pay more for the products) so that will cause food shortages, pork was the main headline making commodity to make headlines.
Alistair darling expects that the UK growth will be between 1.75 and 2.25% which is better than the USA, Europe and Asia, so why would anybody leave?
In order to be a financial services capital you need several things: access to capital, strong regulation and a pool of professionals. London has that and for that reason they will likely retain their crown. My question is why don’t we have a financial management school? Not one that just teaches things about money but one with tied in mentoring and real life examples of how industry works so you create actual professionals and not graduates? This school would teach brokering (granted I have a bias!), life assurance, banking, commercial leasing, actuary, accounting, gilts, currency trading, stock trading etc. and then in year 4 you would specialise and then do a mentor-ship or work experience programme. Its possible, its just not being done.
being a hub for hedge fund admin makes us paper pushers and not the decision makers. London is the finance capital of the world, indeed the British invented a good deal of the banking system and they are undoubtedly experts in the finance field. In fact when I want new ideas I usually call associates there and find the conversation refreshing every time. Its such a pity that we don’t have a system of our own to at least rival it in ability, size would be a long time coming, it would be great for our economy… And my phone bill.