Wealth doesn't trickle down – it just floods offshore, new research reveals

Doesn't the percentage of tax people are willing to pay link with the amount of inequality in their society that they are willing to live with? ie don't countries which tolerate higher tax rates also tend to have less wage inequality? ie wage inequality is also hardwired into our fabric...

OK OP, I'm happy for us both to work to tackle the same problem but approach it from different angles!

All I'm really saying is let's not focus on where the wealthy shove their cash once it's in their hands, let's focus on stopping so much of the cash ending up in their hands to start with. I'll campaign for greater wage equality and you can deal with taxation.

May I just make one final, personal, point on high taxation? I am not opposed to higher taxes personally, or in principle. I have never sought to avoid tax, and neither has my DH. As a household we are squeaky clean! I do, however, subscribe to evidence that shows that raising taxes by 1% does not necessarily increase tax revenues by an extra 1%. It's called the Laffer Curve effect, after the economist who first recognised that every society has an optimal level of taxation hardwired into it's fabric. The Institute of Fiscal Studies has done some interesting work on identifying where the UK's tipping point comes. Unsurprisingly, it's lower than in, say, Sweden where taxation is higher but equally more expenses are met by the state so individuals have to finance fewer costs personally.

I actually think (and this is way off topic now) that our geography also plays a part here in the UK. Land is expensive, we have a culture of home ownership and it follows that we have less free cash for discretionary spending. Unfortunately, some view tax as discretionary.

Don't we already suffer from rampant wage avoidance?

I agree, breadandbutterfly, that there does tend to be a considerable overlap between the people who dislike high taxes and the people who don't see a problem with huge wage inequality. And then there are all the lawyers rubbing their hands together with glee at the thought of defining a "wage."

the old "if you make me pay taxes I'll go away" ploy is fairly unconvincing, but lots of people think it's worth a try.

That doesn't mean the rest of us have to believe it.

It is especially untrue in the case of banks and other financial services trades.

Well I agree on that, CinnabarRed - how to tax people isn't the problem, it's just a symptom of the problem. But how do you shift the culture in a country which courts the super rich and works hard to make them feel good about their wealth?

Sorry to delay getting back to you - have had my day thrown off kilter my an email from HMRC timed at 08:16 this morning, summoning me to a meeting with HMRC and HMT at 10:00 to discuss the proposed new General Anti-Abuse Rule, which I mentioned above...

Anyway, to answer Rabbitstew and Edam, the argument I'm trying to make in my cack-handed way is this:

1. In my view (which I'm happy to debate, of course), the big inequality between rich and poor has very little to do with taxation. It's caused by wage inequality in that the disparity between the average salary in any given company and the pay of the highest paid employee (almost always one of the board, except in banks where it's often one of the traders). I would like to see legislation that caps the maximum multiple between average salary and highest salary.

1. Tax is not a good mechanism to level the playing field. There are 2 main reasons for this. The first is that you do not collect an extra 1% of tax if you add 1% onto the tax rate - this is because increasing taxation changes taxpayer behaviour to the point where people either stop bothering to earn more, or move activity away from the UK, or enter into tax avoidance. There's some evidence that the 50% income tax rate represents a tipping point and hence does not actually raise money but does drive economic activity away (the jury's out on that one, HMRC is due to report).

The second reason is that tax is only every a percentage of salary so if you want to create greater equality between rich and poor it takes longer to achieve via taxation than via salary caps for the rich directly.

This is why I think the fight that matters is to culture-shift to a more egalitarian society, rather than to increase taxes on the rich.

1. Given our starting point - with disproportionate wealth at the top - then it does matter whether that wealth is held onshore or offshore. This is because onshore wealth gets spent here, and hence does stimulate our economy. Take, for example, the height of decadence - owning a race horse trained in a UK stable. The training fees are VATable, so contribute to HM Treasury's coffers. The yard has to employee a stable lad or lass, so contributes to employment (and PAYE/NIC). The yard has to buy straw, feed, saddlery, etc. The race courses have to be maintained. It's better for all that activity to be here then elsewhere.

1. The report had made some fairly grave errors (again, in my view) when it comes to calcuating how much wealth has been transferred offshore. The economic analysis is flawed.

1. Given its flaws, we shouldn't waste our time and effort protesting against largely non-existent problems around tax havens. We should be fighting against wage disparity.

And we can only sit back on our reputation for being uncorrupt whilst we roll back all our laws and regulations for so long - it seems we are an awful lot less uncorrupt than we claim to be, if the recent past is anything to go by.

Unfortunately, gangsters who like to move somewhere safer and more secure tend to make the places they move to less safe and secure, because the people they've upset follow them and don't always use the legal system to help them get what they expect (particularly if they think the legal system will disagree with them). I just can't help wondering how many Russian millionnaires and oil-rich plutocrats we can support before we become a country rather more like the ones they came from. We need a bit more variety in the wealth that we create and attract - we seem to have focused in the recent past on bringing the rich people in to play, but not working on keeping up the facilities in the playground (health and education of the general workforce, utililties, roads, transport, high quality goods etc.). If the intention is to focus only on keeping the hugely rich happy, with public boarding schools, private healthcare, private ambulances, private security and helicopter pads in order to avoid the roads, I don't think that's any good for this country whatsoever and would rather try and do it without them - and if they expect good public services and a useful workforce to be maintained, then they need to be happy to contribute towards it, somehow, which apparently they are not, they just want the end product ready there for them, provided by wealth created from somewhere other than their own pockets. If only we could all provide amazing facilities on the back of people only spending money for fun.

There's perception and there's reality. Both can be identical although usually they are not. The thing is that perception is almost as important as reality.

I remember years ago a firm I had dealings with had invited all their staff out for celebratory drinks to celebrate the fact they'd hit all their targets for a major customer. Unfortunately the customer in question had the perception the firm was not delivering. Result? The firm was sacked.

It's the same here. If the perception is that the UK is anti-wealth, has complex tax laws, punitive tax rates and anti-business. Then the rich will simply avoid the UK. And unfortunately right now that's the message we seem to be giving.

Corruption isn't really a big issue in the UK. We by no means are perfect but in general corruption in other countries are far worse.

Our tax system is ridiculously complex. Does anyone know exactly what they get taxed? I know I struggle.

You are right Piglet, rich people do like to live in nice places. But we're far from the only 'nice' country. If you are comparing London to say Monaco or the Cayman Islands, I know where I'd rather be living. And if I was filthy rich, bringing my private plane to London for an extended holiday isn't going to be an issue.

Rich people like to live in places with an honest and effective police force and legal system, good roads and utilities, street lights, ambulances and hospitals, good public health, a local Mercedes dealer, little gun crime or kidnapping, and an educated workforce with a decent work ethic.

Lots of Russian gangsters millionaires like to live in London because they feel safer and more secure. Lots of plutocrats from oil-rich family nusinesses kingdoms to too.

Oh, and attempt to clarify the tax system (unsuccessfully).

Our solution appears to be to accept the corruption and lower the tax rate.

To ensure maximum revenue collection, I would have thought a country would need a reputation for being well run already, uncorrupt, with clear tax and business rules. The more of these areas in which a country falls short, the lower the tax rate it can charge before wealthy people feel justified in aggressively avoiding it. By "getting rid of red tape" holding back the banks from competing globally (funny how the relaxation on controls and oversight over banks is no longer described as that, now that the red tape in question has been shown to have been useful... it does lead one to wonder whether our politicians have the faintest idea what red tape is and what is essential, protective legislation until the shit hits us all, yet they are still busy removing red tape from everything that isn't a bank and freeing up schools, healthcare and other businesses from the pesky stuff) and being entirely relaxed about what sort of wealthy people came over here to spend their cash and buy up our businesses, we didn't as a country do our reputation for being well run and uncorrupt much good, imo. At the same time, we created a hugely confusing tax system. No wonder we are having problems collecting tax.

Do the world's poorest countries have high tax rates???? I thought they tended to be far lower than here? Clearly it's not just low tax rates that countries need in order to entice wealthy people to pay tax.

EdgarAllenPimms - that might work in a culture that doesn't aspire to paying a nil rate of tax, making avoidance of any level of tax whatsoever entirely acceptable...

"The world's poorest countries, particularly in sub-Saharan Africa, have fought long and hard in recent years to receive debt forgiveness from the international community; but this research suggests that in many cases, if they had been able to draw their richest citizens into the tax net, they could have avoided being dragged into indebtedness in the first place."

this backs up Niceguys point. if anything, this seems to back up lower-level taxation for higher income earners. against the headline on the article, seemingly...

is there more real poverty in this country than thirty years ago?

i seriously doubt it.

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Have you ever played a game of football where the rules are changed arbitrarily, people get sent off for no reason, one team has to play while hopping on one leg, the ref is massively biased, etc? We did this at the 'Make Poverty History' demos in Edinburgh. It was designed to show just how unfair life is for developing countries, and it was brilliant."

this sort of game could equally be used to illustrate the problems facing businesses and HNW individuals as successive governments change the system from year to year. of course, unlike the developing world, they can usually access good tax advice. Or not, as Madonnas case illustrates...

Cinnabar - we've been fed the line that we should let the rich get on with it for years now. We've tried being intensely relaxed about the filthy rich and it has led to MORE poverty, not less. And incidentally a financial crisis caused by the filthy rich.

CinnabarRed - sorry, I haven't really read the thread - which is the fight that matters???
And when you say "they really and truly are entirely unrelated" do you mean WHERE wealthy people keep their unspent money is unrelated to poverty (ie onshore or offshore, it won't help poor people)? Does HOW wealthy people spend or use their money affect poor people, or is that also unconnected to poverty?