The recently-popular epithet ‘Rachel from accounts’ is patronising and has sexist undertones. And it distracts attention from serious problems being created by the truly terrible choices of Chancellor Rachel Reeves. Her long-stated ambition for growth is to be applauded, and over the past few weeks we’ve seen some movement in the right direction. But it is too little, too late. I write as the chief executive of Vardags, a top divorce law firm with offices in London, Manchester and Cambridge.
We work with high and ultra-high net worth individuals, many of whom are foreigners living in London, or British people living abroad. All of which is important context when looking at the impact of the Chancellor’s choices: three in particular. The first is the ideologically-driven change to the non-dom rules, under which rich foreigners have historically been exempt from UK tax on their foreign assets.
The changes make it deeply unattractive for these internationally mobile people to remain in the UK. Tax burden: Vardags Chief Executive Dr Stephen Bence believes chancellor Rachel Reeves (pictured) has slipped up over changes to non-dom rules. And, entirely predictably, they have been voting with their feet with their rate of exodus reportedly more than doubling since the changes were announced. I say ‘entirely predictably’ because I and many others who work with ultra-high net worth individuals predicted it. But sadly the bureaucrats – working from their ivory-towered homes – didn’t. So, it is now clear that rather than this raising tax revenue it will reduce it.
And as those highly successful entrepreneurs enjoy new lives in Dubai, Monaco or Switzerland, they take with them not just their direct taxes, but also the businesses they were growing in the UK, the stamp duty they were paying on their £50million Mayfair houses and the VAT they were paying on their divorces. The second is the utterly naive changes to National Insurance paid by employers. This is about as anti-growth as one can get. Raising the cost of employing people has already tipped some businesses over the edge.
For all the rest it will inevitably reduce the amount of money available to invest in growth. And, lest you think this doesn’t affect you, the ripple effect is huge. It will lead to higher prices charged by businesses, in other words, inflation. Which means that every member of society will pay in higher prices in the shops. And those with mortgages will also suffer because the Bank of England’s ability to reduce interest rates is curtailed.
The third is the short-sighted changes to inheritance tax. In the past, family businesses such as Vardags, would have been exempt from inheritance tax. This both acted as an incentive to build a business that could be passed to the next generation and was also pragmatic because, while such businesses could be very valuable, the owners would not necessarily have the liquid funds available to pay inheritance tax.
With the new rules, whereby inheritance tax is payable – albeit at half the normal rate – on any value above £1million, family members inheriting such businesses will be forced to sell. Worse, entrepreneurs realising this will instead build firms they can sell during their lifetime, likely to foreign private equity firms who will strip value out, and optimise their tax, rather than growing British-owned firms. Again, the opposite of the Chancellor’s growth agenda.
