High taxes are a problem, but the list of factors driving talent away from the UK is far more extensive, writes John Oxley
One of the first criticisms levelled at Labour’s intended tax rises is their potential to drive high-productivity workers away from the UK. It is a fair one. In a world where capital and Labour are highly mobile, incentives matter, and tax can be a significant one. However, it is far from the only factor pushing entrepreneurship and value-adding workers away from the country, and London in particular. If governments are really concerned about retaining talent, the all-around package needs to be improved.
Since the 2008 crash, wages in the UK have been fairly stagnant. This is a problem for everyone, but the ambitious and mobile are most likely to do something about it. For the purely cash-hungry, the US offers huge rewards – with not just generally lower taxes but salaries two or three times higher for the same roles (if you want to be encouraged or depressed, look around on Linkedin for adverts for your job title in New York or Chicago). Closer to home, you might still end up better off in higher tax countries like Germany, the Netherlands or the Nordics because pay overall is higher.
For the very richest, London property has been an attractive proposition. It is secure, stable and generally keeps increasing in value. For those outside that exclusive bracket, it is more of a disincentive. The rising costs of home rental and ownership mean even high earners have to make huge compromises on space or location. It may not be the most sympathy-inducing aspect of the housing crisis – but it is a problem if highly productive workers are drawn away by the offer of cheaper, better and bigger housing in some other country.
Those with families will find childcare another punitive cost. The Organisation for Economic Co-operation and Development (OECD) has found that childcare in the UK is the third most expensive in the world. These costs can sting as much as taxation – and can lure younger high-earners away to other countries that offer generous subsidies for childminding. This points to the other issue of assuming tax is the only push factor. Even for many high earners, public services matter too.
Through the last few years, a sense of stagnation has flooded the UK public services sector. NHS waiting lists have risen, issues like homelessness have become glaringly apparent, trust in the police has declined and transport has deteriorated. All of this matters if you plan to live here. Though the very rich might be able to opt out of some of these through private provision, it doesn’t help much if your Rolex gets stolen or your exclusive neighbourhood is blighted by graffiti.
It is right to worry that increased taxes will push away the most ambitious and productive. People want to retain a sizeable stake in what they generate, but these decisions are usually made in the round. The UK is an attractive place to live for the global rich not just because it offers tax incentives – but because it is stable, safe, connected and cultured.
Those who want to retain the top talent need to understand there is more to life than taxes. Handing over vast sums of money to landlords or mortgages can be just as discouraging as high taxes, as can the high costs of childcare or living with the consequences of a decrepit public sector. All of these need to be tackled if Britain is to retain its place as an attractive place to generate wealth.