According to this year’s Sunday Times rich list, there are 100 billionaires living in Britain. This means that the UK has a higher proportion of billionaires per capita than any other country. You might think this is a good thing: perhaps the UK really is “open for business”, perhaps these billionaires are pumping lots of money into the economy – shopping in Harrods, buying up mansions, sending their kids to private schools and occasionally giving multi-billion donations to arts foundations. Maybe some of that money will trickle down. Even if you think inequality is bad, should you be bothered by a hundred or so super-rich? Well yes, you should. Here’s why:
1. It shows we’ve got our tax system all wrong
Unlike America, China and India, we don’t grow our own billionaires, we import them (two thirds of our billionaires are foreign-born). It’s not just big companies such as Amazon and Starbucks that structure their financial affairs across multiple countries to minimise their tax bills – and for a billionaire having a base in the UK makes a lot of tax sense. Provided you are registered as non-domiciled for tax purposes (“non-dom” in accountant speak) you are only taxed £30,000 on your non-UK income (or £50,000 if you’ve been resident in the UK for over 12 years.)
Now you have to be pretty wealthy for these tax arrangements to make financial good sense. But if you do happen to be a multi-billionaire with a second (or tenth) home in London, you have a strong tax incentive to keep as much out of your money as possible out of the UK. Thankfully, for billionaires, we have some great tax lawyers to help them structure their wealth “efficiently”, taking advantage of the capital’s close links with offshore tax havens.
2. Most billionaires are putting money into the UK economy – but it’s going in all the wrong places
Wealthy non-doms are partly to blame for the rocketing prices of central London property. And, once a billionaire buys a Mayfair mansion there’s a very strong tax incentive for him to keep it empty for most of the year: if they spend too much time in the UK, they lose their non-dom tax status and their tax bill shoots up.
There are other ways in which billionaires pump money into the UK economy: they employ a range of household staff, keep Bond Street boutiques and art galleries afloat and splash their cash in central London restaurants and clubs. And yet industries that depend on the patronage of the super-rich enjoy a precarious existence. As the journalist Robert Frank explains in his 2011 book High-Beta Rich, the incomes of the world’s richest has never been so volatile, because unlike the big business owners of the past, most modern billionaires have their money tied up in stocks and shares. When billionaires fortunes are booming, everyone’s happy, but when they go bust it sends shockwaves through the many industries catering to the super-rich. Do we really want large chunks of the British economy so tied to the fortunes of a few hundred individuals?
3. They are exerting far too much influence on British politics
Billionaires can exert an outside influence on Britain’s politics through their donations. If you give more than £50,000 you can get a dinner with the PM, and to a billionaire, £50,000 is small change. Of the 43 big donors that dined with Cameron in the first quarter of 2014, four were listed as billionaires by the Sunday Times.
Even though billionaires get a good tax deal in the UK, they still contribute significantly to the government’s coffers through tax. The average non-dom pays £55,000 in tax a year, which is 22 times the UK average. Ten years ago, the wealthiest one per cent paid 20 per cent of the UK government’s income tax. Now it’s 30 per cent. As the Sunday Times points out: in the 2012-13 tax year, sales of prime homes in the boroughs of Westminster and Kensington and Chelsea generated £708m of stamp duty, which is £73m more than the residential stamp duty receipts for Northern Ireland, Wales, Scotland, the northeast, northwest and Yorkshire and the Humber put together.
In some ways this is good – the government, after all needs the money – but it’s also problematic. The UK government’s solvency is increasingly dependent on the incomes of a small number of individuals – who can choose to move their money elsewhere at any time, and whose incomes fluctuate with the stock market.