The UK is missing out on over £3bn of consumer spending and £320m of lost VAT a year because of the rising popularity of ‘digital nomad’ schemes among British citizens.
According to a fresh study from Public First, the modish regimes – which promise professionals long-term work visas without having to become fully-fledged tax residents – have lured an estimated 165,000 UK citizens abroad, with exotic locations like Bali, Lisbon and Tblisi proving especially popular.
But the schemes’ popularity is acting to the detriment of the UK’s economy and public finances, the study said, with its authors warning that a growing number of ‘nomads’ are considering laying down permanent roots in their destination country.
Digital nomads tended initially to take up the schemes because of their promise for a lower cost of living, cheaper rents and a better quality of life, the report’s authors found. But with living standards in many of their home nations plateauing, and fledgling digital nomad-oriented local economies cropping up, users are staying abroad for lengthening periods of time.
“You’re going to get to a tipping point where people start to go, ‘If I can do my job there, earn the same amount of money there while paying less in living expenses, and benefit from private healthcare and good schools, why wouldn’t I go to Bali?’” Ben Savours, senior economist at Public First, told City AM.
Spawned out of the pandemic, the visas have been adopted by dozens of countries looking to attract wealthy professionals to work and spend their comparatively high salaries in their economies. Many schemes only accept applicants that can prove a monthly income of £3,000.
The UK Exchequer is still able to collect income tax, capital gains tax and national insurance contributions from digital nomads, who paid an estimated £1.6bn in UK taxes last year. But it misses out on VAT and the economic activity generated from their spending.
The study also found that as uptake in the schemes has risen, the destination economies are developing the infrastructure to accommodate free-spending guests, with purpose-built co-working spaces, gyms and private healthcare firms all cropping up to service foreign professionals.
“The destination economies are genuinely investing in these places,” Savours said, “creating the places for them to stay in, restaurants, bars and so on for these people to spend their money at.”
Growing awareness and popularity of the visas has led seven per cent of UK respondents to a Public First poll to suggest they are ‘very likely’ to try and work as a digital nomad over the next three years.
But if just half of the seven per cent of UK adults followed through their plan to take up the scheme, the UK economy would lose an estimated £26bn in consumer spending and £2.7bn in VAT.
The paper – published on Thursday and shared exclusively with City AM – warned that the future cost to the Exchequer could increase as current nomads reevaluate their long-term home.
“If self-employed digital nomads changed their tax residency status or incorporated their business abroad, it could put £5bn of tax contributions at risk. These are figures the Treasury would certainly notice,” the paper said.
Public First’s study is published amid growing fears that the UK is struggling to retain its most economically-productive citizens. In January, a study from New World Wealth found the UK lost a record net 10,080 millionaires over the course of last year, a 157 per cent jump on the 2023 figure. Meanwhile a spate of wealth advisors and lobby groups have been warning that the government’s decision to abolish the UK’s non-dom status is resulting in a mass exodus of wealthy foreigners ahead of it coming into force in April.