In defence of Britain's most loathed minority
By
Bill Bonner Mar 03, 2008
Print this article
Not since the fall of the dotcom impresarios has a group seen its stock marked down so fast. A few months ago, the British thanked the financial industry for the island’s remarkably puissant economy and inclined its neck towards the City as though to the passing of the True Cross. Never had so many owed so much to so few, as Churchill might have described it, followed by a malicious chuckle.
Now, it seems the financial geniuses are blamed for everything – from the failure of Northern Rock to the decline in housing prices to the lack of parking places. What has happened?
As the price of subprime debt plummeted, so did the reputation of an entire profession. All of a sudden, everyone who touches money for a living is believed to be a rascal. And everyone who has a lot of it is thought to be a scoundrel. Week after week, the press targets bankers, moneylenders, German tax evaders, hedge-fund managers; first one, then the other, they are singled out for abuse, ridicule and reprisal. The whole moneyed class has been downgraded from triple A credit to junk debt – especially those rich, privileged few, the ‘non-doms’, who don’t have to pay rack rate UK taxes.
It was the “biggest failure of ratings and risk management ever”, said analysts at UBS. As the tide of cash and credit subsided, in Warren Buffett’s beautiful metaphor, we got to see “who’s been swimming naked”. Not a pretty sight. Prevailing opinion is that the financial engineers made ‘mistakes’; they forgot to put on their bathing suits. Now, everyone is pointing at them and laughing.
Of course, even when they are making money, the scheming rich have few real friends. And when they lose money they are as unwelcome as smokers. Even here at MoneyWeek both our editor, Merryn Somerset Webb, and one of our leading columnists, Simon Nixon, have argued in favour of squeezing the non-doms. “Why are people who have been based here for 20 years allowed to claim that the UK is not their domicile in the first place?” Merryn wants to know. “And having done so, why are they allowed to pay practically no tax and then pretend that this situation is good news for the rest of us?”
There are matters of principle. And matters of practicality. Merryn is arguing the principle of the thing. ‘It’s not fair,’ she might have said. Simon is concerned with the practical issues. If the non-doms leave, won’t they pack up Britain’s miracle money machine in their luggage and take it with them? Don’t worry, says Simon, they’re not going anywhere: “The only places in Europe where non-doms can expect better treatment are traditional tax havens, such as Monaco and the Channel Islands, or Ireland, which operates a similar non-dom regime to the UK. These aren’t serious rivals to London.”
But here on this little page of MoneyWeek at least, we take the side of the underdog, even a mangy one. I rise to defend this whole class of econopaths and lucred loners – especially the non-doms – neither for reasons of fairness nor practicality, but for the simple reason that I am one. No, it’s not a matter of principle. It’s the money.
Faced with having to pay the British Government an additional £30,000 (we already pay tax in Britain on our UK-source revenue... and taxes elsewhere, wherever the money is generated), we non-doms might not leave the country. But we will be getting our bags together, just in case.
Besides, I have a better idea. Most likely London’s major industry – finance – is in decline. And most likely, the departure of a few non-doms is not going to make much difference. But, at the margin, who knows? If the financial industry is in a slump and, on top of that, a substantial number of non-doms take their credit cards and leave, London could suffer. A logical analyst might conclude that the city has more to lose than to gain by taxing the non-doms now.
But one of the foundation delusions of the whole Reagan/Thatcher boom era was that people always respond directly and logically to financial incentives. “Homo economicus” was said always to make rational, wealth-maximising decisions. In fact, he’s an impostor. Real man is often more driven by envy than the desire for absolute wealth. And I can prove it.
Behavioural economists conducted an experiment in which people were offered $100, on condition that they share it with someone else. If they couldn’t strike a deal as to how to divvy up the money, quickly, they got nothing. Logically, the second person should agree to anything, because it was free money. But researchers found that if they were offered anything less than 30%, they refused; it just wasn’t considered fair.
Likewise, Britain is probably better off offering shelter to the footloose non-doms, no matter how little of their wealth they choose to share. But envy pushes the politicians and its citizens to insist on a fair deal.
But here’s a better way to give everyone a fair deal. Instead of taxing the non-doms like the rest of Britain’s patsy taxpayers, tax UK domiciliaries like the non-doms. That is, treat everyone fairly. Treat them all the same. Don’t make any of them pay tax on money earned outside of Britain. In the meantime, readers are advised to sell the UK short.
Published in
Economics
| More
articles
by
Bill Bonner
Related articles
-
By David Stevenson, Feb 08, 2010
-
By John Stepek, Feb 04, 2010
FREE - MoneyWeek's daily investment email
Our free daily email, Money Morning, is an informative and enjoyable analysis of what's going on in the markets. Written by our Editor, John Stepek, and guest contributors.
Sign up FREE to Money Morning here.
