JP Floru: Diageo stops hiring: 50p flight is real

JP Floru is the Director of Programmes at the Adam Smith Institute.

Diageo, the world’s largest spirit maker, has announced that it will stop basing staff in the UK because of the 50p tax rate.  CEO Paul Walsh explained that Diageo can pay its staff less in (for example) Singapore, where they only face 10% income tax.  A Lloyds TSB International expat study also found that 15% of British overseas staff do not plan to return to the UK.  They point at being financially better off (64%), and a lower cost of living (52%).

Announcements like Diageo’s are very welcome, as they provide a loudspeaker to a problem that otherwise occurs largely unnoticed.

A few weeks ago I wrote about residents from my ward who have left the UK for more tax welcoming countries such as Switzerland, Singapore, and Hong Kong.  One criticism was that this information was “too anecdotal”.  The reality is that 50p flight evidence is necessarily anecdotal – at least for now.

The Inland Revenue will only obtain firm figures of 50p flight 18 months after it happens in individual cases.  The first to notice – long before the Inland Revenue and therefore the politicians do - are family members and friends, local councillors, and HR departments in companies.  Companies like Diageo, stating openly that there is a problem are, alas, rare.

There are three other reasons why the 50p flight goes largely unnoticed:

1. Only 275,000 people pay 50p tax.  That is not a large group out of the 62 million Brits – and among these 275,000 there will be many who cannot flee – even if they desired to do so.  There are children at school, family ties, or the 50p payer may feel that (s)he is too old to move to the other side of the world.
2. 50p will only be one of many factors to move away.  There is not only the lower tax; there are also the greater career opportunities in booming markets; or the adventure.  People may not mention the 50p at all when they move – they may not want to seem greedy.
3. In many cases the fugitives will be replaced by, for example, continental European graduates, who have marinated in high tax rates.  As starters they may be quite happy to earn a lower take-home pay.  Leavers would be people who actually feel the difference between 40p and 50p – because they have experienced both.

So, you might ask, what is the problem?  Do we care whether the 50p is a foreigner, rather than an immigrant?  I think we do: the immigrant may not be domiciled here for tax purposes, and therefore not pay the 50p at all.  In addition, the person who leaves will take his expertise and knowledge with him; thereby reducing experience and knowledge in the UK.  And last but not least, the leavers will often take clients and business with them.

Recently one former Treasury minister expressed disbelief when HR people from large companies told him there was a problem, and that many of their staff were actually leaving.   His ignorance was unsurprising – perhaps our Treasury relies too much on HM Revenue figures, which always arrive with a massive delay. 

By relying on late figures and yesteryear’s punitive tax rates, the UK may miss the train altogether.