Sunday, October 20, 2013

The Low Tax Problem of a Global City

A few weeks ago, Michael Goldfarb published an article in the New York Times highlighting the growing crisis in London property. His view- that Prime London property has become a global currency- has been said before, and rightly. However the timing of his article hit the zeitgeist of growing anxiety about the mismatch between London as a place to live, the capital of the United Kingdom, and London as a playground of the globalized rich. 

The squeeze in London is having a strongly negative effect on large areas of British Society, and the influx of hot money from places such as China, Russia and the Arab World- not to mention crisis-hit EU member states is not just undermining the social fabric of London but the economic fabric of the UK.

At the Liberal Democrat conference in Glasgow, several London based members made the point that these apartments now owned by the global uber-rich are often left empty, so at night you see few lights on in Mayfair and Belgravia- and the impact on the city is a kind of hollowing out.

The fact is that the taxes which are payable on Prime London property are so low as to represent a gigantic enticement to the emerging investor class of China to fill their boots in London, at the expense of the cohesion of the the city and the lifestyle of the British people.

It seems to me self-evident that the cost of this influx of investment has created social problems way in excess of the benefits. If the coalition government in the UK actually wants to fix the housing bubble, they should not be trying to distort the market still further by attempting to create even bigger mortgages: they must instead impose the appropriate level of property taxes on those assets which are held to the benefit of foreign, non-resident owners. Doubtless unscrupulous legal and accounting advisers will try to create UK domiciled structures, but as elsewhere in the world, notably the US, HMRC should be allowed to look through those structures to determine ultimate beneficial ownership.

The London property market is wrecking British competitiveness, and without decisive intervention, to remove the low tax incentive for foreigners to invest, this will become permanent and crippling burden for the UK..    

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