Although my business interests are international, I have lived in Britain for over 25 years. I deeply love and respect this country. I have called London home for almost half of my life. This is the city where my son grew up into a fine young adult thanks to the fine British public school education. He may have Indian roots, but his identity is very British.
So, why did I choose to make Britain home?
Firstly, because it is a very pleasant place to live. Britain has parks, libraries, museums, theatres and a very high level of culture. Secondly, it has been an intellectually stimulating place to live. Britain has world-class universities, excellent media and lively public discourse. In the sciences, it may not be able to match the US, but the land of Isaac Newton still punches far above its weight. Finally, Britain has been a good place for business. British pluck is well known. This is the nation that stood up to Nazi Germany when the rest of Europe crumbled and saved democracy on the continent.
Yet this place that I have made my home is no longer marching to the broad sunlit uplands. Sadly, the sun has indeed set on the British Empire.
The British can thank Brexit for this sunset. This vote to leave Europe will go down the annals of history as the biggest political hara-kiri in the country’s recent history.
Core systemic challenges
After World War II, Britain lost its empire but retained its seat at the top table. After the 1956 Suez Crisis, the UK has been a loyal ally of the US. The Brits have followed the American lead on Afghanistan, Iraq and now the Russia-Ukraine War.
Yet this “special relationship” is not keeping the British economy afloat anymore. High inflation, high tax, low growth, low wages and, alarmingly, low productivity now define the economy. According to The Economist, Britain’s economic record since 2007 ranks near the bottom among peer countries.
After World War II, Britain introduced the cradle-to-grave welfare economy. Clement Attlee’s Labour government introduced the National Health Service (NHS) that the British have come to treasure. Yet this national treasure is in crisis. Waiting times for patients have been going up. Junior doctors have declared that they will be going on strike. No less than “819,000 operations, procedures and appointments in England have been postponed, adding to the 7.5 million people waiting to start routine hospital treatment.”
The welfare system is simply not working anymore. The UK does not have the economic growth to pay for it anymore. Even the NHS is collapsing. The truth is that generations who have not worked and lived off the welfare system are draining the economy. The UK simply cannot afford to keep subsidizing those who do not work. Sir Humphrey Appleby’s suggestion to cut off all social security to those who turn down two job offers might not be such a bad idea.
Flawed tax structure
With an aging population and increasingly fewer people paying taxes, the government is under pressure to balance the books by increasing tax rates on those who do pay. If you earn £50,271 ($64,620) to £125,140, then you pay 40% of that income to His Majesty’s Revenue and Customs (HMRC) department. If you earn over £125,140 ($160,910), then the government takes 45% of every extra pound you make.
Add value-added tax (VAT), national insurance and other taxes and you find that the tax figure climbs to well above 60% of your income. With such high taxes, why should anyone work?
The UK has not only decreased the incentive to work but it has also made it less attractive for capital to remain in the country. Inheritance tax is 40% on the value of an estate above £325,000 ($417,760). This tax has to be paid immediately, even before probate is granted. (“Probate is the legal right to deal with someone’s property, money and possessions (their ‘estate’) when they die,” according to the HMRC.) Such a high inheritance that has to be paid immediately ensures that many inheritors sell off properties just to pay the HMRC.
The UK’s English-speaking cousin across the Atlantic is far less punitive when it comes to what the Internal Revenue Service (IRS) calls the estate tax. This tax only kicks in when you cross $12,920,000. It is not just the US that is liberal on inheritance taxes. In 2004, the Riksdag, the Swedish parliament, abolished the inheritance tax and the gift tax through a unanimous vote.
The UK has even hobbled the City of London, once a rival to Wall Street but now reeling under a law that treats the gains of fund managers as income. In contrast, the US treats these gains as carried interest. This is the term used to describe a share of profits earned by general partners of private equity, venture capital and hedge funds. In the US, fund managers pay a top 20% federal tax rate on carried interest, rather than regular federal income tax rates of up to 37%. Naturally, fund managers no longer want to incorporate funds in the UK.
As if these taxation measures were not foolish enough, the government has delivered a coup de grâce. A Conservative government, which is supposedly pro-free market, abolished the VAT refund for foreign tourists. For decades, rich travelers—Arab, Russian, Chinese, Indian et al.—have shopped till they dropped in London and other parts of the UK. From January 1, 2021, these foreign tourists have had to pay taxes on their purchases. This makes London a less attractive destination as compared to Paris or Milan. Harrods, Selfridges and Bicester Village once teemed with foreign tourists but now attract sparse crowds even in the middle of the summer.
The British economy is in a deep crisis. Once the Industrial Revolution and British Empire made the UK rich, powerful and prestigious. Only the memories of Raj Britannica remain now. The economy is in the gutter, the middle class is in pain and the country’s leaders have no vision for the future. This blessed green island nation I call home is not so blessed anymore.
The views expressed in this article are the author’s own and do not necessarily reflect Fair Observer’s editorial policy.
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