Assetz® News - Capital Gains Tax, Immigration and Non-Domiciles

Capital Gains Tax, Immigration and Non-Domiciles - A Government Out of Touch ?

16th February 2008 |

Recent examples of the government's lack of understanding of some of the key drivers behind the UK's economic growth over recent years are now beginning to have a direct economic effect.

Capital gains tax : the proposal to change capital gains tax for business owners from 10% to 18% showed a complete lack of understanding of the importance of the entrepreneurial sector to the UK economy. Although there is a proposal for some softening of this 80% tax rise for a small part of the business owners gains when he sells the business the overall effect is a massive tax rise on business initiative in the UK. A 10% tax rate was relatively negligible but an 80% increase will re-incentivise people to look at tax avoidance and at worst will reduce the motivation of business people and want-to-be entrepreneurs to start businesses. Not good for the UK economy.

Immigration : We are now beginning to see some of the effects of the government's tightening up on non-European immigration. They cannot restrict European immigration easily due to EU Law but restricting non-European immigration will reduce the number of people coming into the country that our powerhouse economy needs to provide much-needed labour and continue to have a reducing effect on inflation. Recently we've seen the sudden inability of 'low skilled' Bangladeshi chefs to come to work in the UK reported as seriously affecting the curry industry. This is a high profile example but there will be many more examples of labour shortages beginning to drive inflation if the government digs its heels in. Good supply of labour prevents wage inflation running away and limited supply of labour will permit wage inflation to feed into overall inflation at a time when potential inflationary pressures are definitely to the upside. Higher inflation means higher interest rates and high interest rates mean a suppressed business world. Again, not good for the UK economy.

Non Domiciles : Many non domiciles work in the UK paying negligible tax but what they bring with them in the form of business and flow of money from activities they are involved in massively helps the economy and is one of the key factors behind the UK having become the leading financial services centre in the world. Beginning to attack non domiciles with new taxes could undermine the financial services sector, a huge contributor to UK plc. Pretty much every Greek shipping tycoon is also looking at moving their business elsewhere in a public announcement a few days ago. There will be many more examples of lost business. Again, not good for the UK economy.

All in all we seem to have a very anti-business and indeed anti-UK government at the most inopportune moment. If they don't change their ways it could really begin to harm the country's economy and that won't help property investment values although it will drive rents up dramatically in all likelihood. Given that they started out so well with pro-business policies it's a pity that in our time of need they've reverted to their old policies.

This is not a political rant, if any party was trying to damage the UK economy in this way I would be saying the same things.

Stuart Law

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.