Kill exit tax rumours now – before it's too late
Rumours that the Treasury is considering an 'exit tax' must be put to bed, immediately.
An exit tax is the wrong solution to the wrong problem. The real divide in our economy isn't just between rich and poor, but between those working to get us out of economic malaise and the legacy incumbents happy to keep coasting on the rents of stagnation. The tax system should target those that extract without creating – slowing the economic growth that would make us all better off – not the entrepreneurs restoring British dynamism.
The Problem with Exit Taxes
In a tough fiscal moment, an exit tax might look superficially attractive. Other countries have them, but the UK does not. Some argue this asymmetry creates an arbitrage opportunity for internationally-mobile, wealthy individuals and an incentive for those currently here to move abroad before crystallising their gains.
But this doesn't mean the UK should drastically expand its regime. Rather than increasing revenues, an exit tax would push founders to relocate earlier, long before they build significant taxable wealth. It would also discourage future entrepreneurs from building in the UK. There is already a strong incentive for British founders to move to countries like the US; introducing an exit tax risks realising and accelerating that outcome.
The Evidence
Like it or not, we have clear evidence that high net worth individuals respond to incentives: when Norway increased its effective tax rate on wealth, it saw an immediate exodus of wealthy individuals. This effect is likely to be much stronger in the UK, where wealth is more international and more mobile.
The operative question is not whether Britain is an outlier, but whether introducing an exit tax changes the calculus of founders deciding whether to stay or move here. Fear about being locked into a disadvantageous tax regime may cause founders to leave prematurely, still selling into our economy but with Britain capturing much less of the value here.
A Better Path Forward
British technology companies should be front and centre of a new economic revival. Startups are the delivery units of progress. Founders are increasingly tackling ever more ambitious problems in the national interest, in areas like health, energy, climate, materials, defence and finance.
Instead of an exit tax, the government should focus on enabling these new economic engines that will chart the path out of stagnation. The Chancellor must kill the rumours now, before it's too late.
Read the full article on Centre for British Progress