Almost a third of leading lawyers think the UK Government’s tax policies have damaged the City’s position as a global financial centre, with almost 70% objecting to recent proposals to impose a charge on non-domiciled individuals.
Legal Week research found that 20% of City lawyers think the Labour Government’s tax policies have had a negative impact on the City’s position, while a further 11% go further and argue the policies have actively driven business away.
The findings, revealed in the latest Legal Week Big Question survey, also highlight the unpopularity among lawyers of the Government’s latest proposals, which mean non-domiciled individuals working in the UK would be subject to an annual £30,000 levy after seven years, or face bringing their earnings under full domestic taxation.
"Non-doms are not here for the weather."
"There's no real prospect of the non-doms all sodding off to Switzerland or some God forsaken tax haven."
See partner comments below
Just under 38% of respondents said they felt the measures would be potentially damaging, with a further 31% saying they would be “very damaging”.
Withers partner Judith Ingham (pictured left) said: “The Government has caused enormous disquiet in the non-dom community. Some people will leave, and certainly some that were considering coming over here will change their minds.”
SJ Berwin financial markets partner Daniel Tunkel added: “Insufficient care has been taken over the policy and there remains a serious risk that a significant number of non-doms will elect not to come to or remain in the UK and ply their trade elsewhere. For the UK financial services industry, this could be disastrous, and the UK will pay a much larger invisible price than the government of the day raises from the licence fee.”
However, 17% of partners questioned disagreed, saying the tax levy would be justified with an additional 6% saying they should be raised further still.
One partner commented: “If people want to live here then they should pay their taxes, which go towards paying for the things they claim they enjoy so much about London. The rest of us do — well, unless you are a partner in a private equity firm.
“There is no real prospect of the non-doms all sodding off to Switzerland or some godforsaken tax haven.”
The statistics come after Legal Week reported that City firms including Macfarlanes, Withers and Charles Russell have joined forces with a number of professional organisations to lobby against the planned crackdown on non-domiciled residents.
The survey also gauged partners’ feelings about their own personal taxation. While a large majority (59%) felt they were paying about the right amount, almost a third said they felt they contributed too much. In contrast, just 10% said they could pay more.
More than 40% of respondents admitted they find current earning rates for partners across the City hard to justify. With average profits per partner at the magic circle firms hitting £1.14m last year, 27% said it was getting harder to make the case that rates were justifiable, while 5% confessed they thought partner pay had reached ‘embarrassing’ levels.
However, the majority (59%) still felt earnings were largely or entirely justifiable.
Travers Smith partner Stephen Paget-Brown (pictured right) commented: “[Earnings] are market-driven and firms undertaking completed international work need to pay rates that enable them to attract the best talent in competition with bankers, accountants, private equity professionals and others.”
However, almost half (48%) of respondents said they felt the growing disparity in wealth between the top earners and the general population would become an increasing social and political issue, with more than 10% saying they thought the debate was only just beginning.
What the partners said
It’s a dog’s breakfast
“You only need to consider the short-term damage Sarbanes-Oxley did to the US capital markets to realise how easy it is to get the balance wrong and lose market share.”
"There has been no attempt to assess the impact [of the tax] - and the Irish are rubbing their hands in glee at the thought of financial businesses moving to Dublin."
“Two of my city based non-dom clients have already decided to leave the UK and will take their businesses with them. It is not the tax charge which bothers them, but the fundamental uncertainty and the feeling that having been encouraged by tax breaks to establish here, they are now fair game for a cash-strapped government. The new tax regime will lead to a net loss for UK plc.” Peter Greswold, tax partner, Wrigleys
“This is a disaster for UK and London as a hub for international business.”
“An extraordinary amount of the country's wealth and position is attributable to London being the financial centre of Europe and related time zones. To raise a few hundred million pounds max in return for jeopardising this seems bizarre and shortsighted. It is a return to the politics of envy.”
“The attitude towards the non-doms is being sold under the fairness banner, yet there are still gross inequalities for the non-doms - do they get the right to vote, what will happen on double taxation, will the inheritance tax rules change so they will be treated the same as doms?
“The proposed legislation has not allowed a proper amount of time for consultation. The politics of envy are flying in the face of commercial reality and the potential damage to the UK economy has not been thought through. Non-doms are not here for the weather.”
Robert Vallings, partner, tax and private client, RadcliffesLeBrasseur“There is no question that recent government announcements on tax have already damaged the UK's position. The changes can only serve to undermine the competitive edge of the UK, and the economic environment across Europe, at a time when the UK financial services industry is reeling from the impact of last year’s credit crunch, is worried about the world economy and is being wooed by other countries that are jealous of London’s position. Affected taxpayers have insufficient time to adjust to the changes, and are left with a sense that the Government is prone to hurried and capricious rule changes.” Simon Witney, partner, SJ Berwin
“The tax proposals for non-doms are ill-considered. Adjusting consumption taxes like VAT would be a simple method of collecting tax from high spending non-doms while still maintaining the competitive and life style advantages of London.”
“It is not the £30,000 levy that is the problem but the way that it has been handled and all the other tax issues affecting non-doms, including those resident for less than seven years, that is driving non-doms away.”
"The proposed reform, is petty, class/xenophobe-driven and will drive business away from London."
“Alistair Darling develops the English language by creating a new synonym for incompetence.”
“The non-dom levy… urgently needs to be re-considered by Government."
“The way in which the proposed changes to capital gains tax and non-doms have been handled is nothing short of a shambles.”
“The damage caused [by the non-dom tax] is likely to be much greater than the additional revenue which will be raised. Because the Government is walking a tightrope between being seen to be business friendly and yet 'fair' in tax raising policy and can't really decide which leads the day, it is likely to fail on both counts.”
“After 10 years - let alone the experiences of the 1960s and 70s - it is surprising that this Government still does not appear to have learnt two things: that increasing taxation above a critical level will reduce the overall tax take and that the law of unintended consequences applies almost always to changes in rates of taxation.”
“Income disparity is already on the decline. Big bonuses are a feature of a bull market and we won't see them again for a good few years. The government's clumsy tax changes have come too late and will only exacerbate the market dip.” James Dakin, partner, Nabarro.
“Keep in mind that many non-doms are professional two-wage earner families, so for some the tax will be £60,000.”
Non-doms should pay their way
“If people want to live here then they should pay their taxes which go towards paying for the things they claim they enjoy so much about London. They rest of us do (well, unless you're a partner in a private equity firm).”
"It is hard for the government to justify not taxing the super rich who live here while taxing the middle class who live here to the brink of extinction."
What’s all the fuss about?
“The City thrives anyway for many reasons - Government can damage it a bit - but London is the place many international players want to be. Fewer will go offshore than threaten to go.”
Lawyers earn their crust
“The pay received by all levels of city lawyers are not easily justifiable - either to clients or to wider society.”
“We live in a society that in financial terms values trainees more than teachers or many doctors and values City firm partners more than heart surgeons or a prime minister, which is obviously odd and on most bases seems wrong. However, nobody has come up with a fairer system that works.”
“Lawyers tend to earn what the market deems them worth. Therefore there should be no complaint at high earnings.”
“We are forced more and more to price by reference to what it takes to retain and attract the top earning partners rather than by reference to the value we add; it is only because there is not such a huge number able to do most of the work that we do that we can get away with it. The really galling thing however is that the investment banks, consultants and city hangers-on (HR people, recruitment consultants, conference organisers and, dare I say, directory publishers) also make a mint for adding bugger-all value.”
“Lawyers take less risk than many in the City so earn less and that is fair. They also earn the most they can in the market which is entirely understandable.”
“Legal services are a vital part of ‘invisible’ earnings and contribute greatly to the nation.”
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