Cor­byn’s tax plans

How can you pro­tect your money from a Labour grab? Jeremy Warner

The Daily Telegraph - Business - - Front Page - JEREMY WARNER

The pound had an­other wob­ble this week, but this time it was less about Brexit and more to do with a rather dif­fer­ent con­cern; that of grow­ing po­lit­i­cal in­sta­bil­ity and the pos­si­ble elec­tion of a hard Left, Cor­byn-led gov­ern­ment.

Un­til quite re­cently, I went along with the pre­vail­ing City view that Jeremy Cor­byn’s even­tual tri­umph at the polls was a rel­a­tively im­prob­a­ble end re­sult. Ad­mit­tedly, Labour’s new rad­i­cal­ism did much bet­ter than ex­pected in the last elec­tion, but this could plau­si­bly be at­trib­uted to an un­usual con­flu­ence of forces quite un­likely to be re­peated, in­clud­ing an an­gry protest vote from well-heeled met­ro­pol­i­tan Re­main­ers who would not nor­mally be counted even as Labour-lean­ing let alone sup­port­ers of a hard Left po­lit­i­cal agenda.

Yet it is no longer pos­si­ble to be so com­pla­cent. Theresa May is plainly fin­ished as a leader. It’s a ques­tion of when, not if. Caught be­tween a rock and a hard place, her predica­ment grows worse by the day. If she does what Brus­sels de­mands and sig­nif­i­cantly in­creases the size of the di­vorce set­tle­ment, she’ll face con­dem­na­tion from Re­main­ers – who will claim that the ref­er­en­dum was won on the ba­sis of a lie – and hard Brex­i­teers alike.

The com­bi­na­tion of penny pinch­ing aus­ter­ity on the one hand and prof­li­gate largesse to an or­gan­i­sa­tion Bri­tain will soon be leav­ing on the other would be a hard sell po­lit­i­cally at the best of times. Yet to do the op­po­site and refuse the money, thereby risk­ing a “no deal” exit, would be equally un­ac­cept­able to many par­lia­men­tar­i­ans.

The weak­ness of May’s pre­mier­ship doesn’t of it­self make a Cor­byn vic­tory in­evitable; it merely pro­vides an op­por­tu­nity. Yet Cor­byn senses much deeper forces in his favour, and he is right to do so. Pol­i­tics is on a long cy­cle; what’s go­ing on looks like a hard to re­sist gen­er­a­tional shift. If Brexit rep­re­sented a vote against an un­sat­is­fac­tory sta­tus quo, Cor­byn’s pop­ulism is the log­i­cal next step in this yearn­ing for change, how­ever delu­sional the so­lu­tions of­fered. It’s an ab­surd par­al­lel, I know, but with ref­er­ence to the 100th an­niver­sary this year of the Rus­sian Rev­o­lu­tion, May is Keren­sky, rep­re­sent­ing the ini­tial phase of Tsarist re­jec­tion. Cor­byn is the Bol­she­vik stage yet to come.

In any case, we are, I fear, at the be­gin­nings of a pe­riod of pos­si­bly quite sig­nif­i­cant cap­i­tal flight, which will ac­cel­er­ate as Cor­byn’s mo­ment of glory ap­proaches. Mon­day’s wob­ble in the pound may have been just a fore­warn­ing of what’s to come. Al­ready, the su­per rich are tak­ing pre­cau­tion­ary ac­tion. Be­cause they can, many non doms are also think­ing about re­lo­ca­tion. Some have al­ready gone. When over­seas in­vestors hes­i­tate, they do so as much be­cause of fears of a hos­tile, se­ques­trat­ing tax regime as wor­ries about Brexit.

Labour’s pub­licly stated tax poli­cies fall into four cat­e­gories. In­come tax on the 2pc of the pop­u­la­tion with earn­ings ex­ceed­ing £80,000 a year would be sig­nif­i­cantly in­creased, with the bur­den fall­ing par­tic­u­larly ag­gres­sively on very high earn­ers, in­clud­ing an “ex­ces­sive pay levy” on earn­ings of more than £330,000. The rate of cor­po­ra­tion tax would be re­stored to 26pc, there would be a fur­ther catch-all crack­down on tax avoid­ance, and stamp duty would be ap­plied to bonds and de­riv­a­tives along­side shares, a strange thing to do when greatly ex­panded spend­ing plans will re­quire mas­sive sup­port from debt mar­kets. But then com­mer­cial logic gets lit­tle con­sid­er­a­tion in any of this.

Less overtly stated, but all too likely to be im­posed are wealth taxes, land value taxes and, in an at­tempt to pre­vent the out­flows that sup­pos­edly sank Greece’s rad­i­cal Left, Syriza-led gov­ern­ment, cap­i­tal con­trols.

What can the rel­a­tively well off punter do to pro­tect him­self? De­press­ingly lit­tle, seems to be the an­swer. The young and ad­ven­tur­ous can, of course, sim­ply leave the coun­try and find a job else­where. A sig­nif­i­cant brain drain is the al­most in­evitable con­se­quence of any such tax regime.

For the vast ma­jor­ity of peo­ple, how­ever, this will not be an op­tion. Nor would domi­cil­ing your­self abroad for tax pur­poses, an ex­ces­sively com­pli­cated pro­ce­dure which re­quires both that in­come is pre­dom­i­nantly earned over­seas and that limited time is spent on these shores.

Ef­fec­tive cap­i­tal con­trols may be next to im­pos­si­ble in this age of mas­sive cross-bor­der flows, but that won’t nec­es­sar­ily stop Labour try­ing.

Labour will be ready, John McDon­nell, shadow Chan­cel­lor, prom­ises, “when or if they [the City] come for us”. One plan floated by Labour in the Eight­ies in­volved, in ef­fect, tax­ing over­seas in­vest­ment much more heav­ily. Labour as­sumed it would force greater in­vest­ment in Bri­tain. It didn’t seem to oc­cur that it would also de­ter prof­itable in­vest­ment in the UK by over­seas in­vestors. Since the Thatcher years, the pol­icy has broadly been to try to at­tract for­eign cap­i­tal by mak­ing Bri­tain tax com­pet­i­tive. Labour’s plans in­fer im­pris­on­ment of cap­i­tal so as bet­ter to tax it, a re­ver­sal of cur­rent pol­icy.

For those with spare cap­i­tal, it might there­fore pay to shift the money off­shore, by for in­stance set­ting up an over­seas bank ac­count. This won’t pro­tect it from in­come and wealth taxes. As with in­her­i­tance, in­come is taxed on a global ba­sis; the same would be true of wealth. But it would at least pro­tect the money from cap­i­tal con­trols. For those with long mem­o­ries, £50 per head used to be your lot when go­ing abroad, and some­times even less, pro­vok­ing some ex­treme avoid­ance prac­tices; the se­rial en­tre­pre­neur Rolf Schild al­legedly de­lib­er­ately had him­self kid­napped by Sar­dinian ban­dits in or­der to avoid ex­change con­trols on the £220,000 paid as a ran­som.

As for wealth, a pos­si­bly bet­ter ap­proach than sim­ply off­shoring it would be to split the money into smaller batches and hand it on to your chil­dren. But again, for most peo­ple this would be messy, com­pli­cated and im­prac­ti­cal. My guess is that Labour’s plans will in­vite an ex­plo­sion in sim­ple, but il­le­gal, tax eva­sion. There are plainly no win­ners from such a down­ward spi­ral. What seems clear is that Cor­byn on top of Brexit would be a pe­cu­liarly toxic com­bi­na­tion. We needn’t worry about the big boys; they will be long gone be­fore it hap­pens. As al­ways, it will be the lit­tle guy who suf­fers most.

‘My guess is that Labour’s plans will in­vite an ex­plo­sion in sim­ple, but il­le­gal, tax eva­sion’

Jeremy Cor­byn out shop­ping: how much spend­ing money will peo­ple have un­der his pro­posed tax regime?

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