No Tax for Big Spend

‘Levelling Up’ has been discussed for many years in the UK but has rarely proved successful. Wealth remains concentrated in London and the Southeast and many left-behind towns remain left-behind with little prospect for renewal.

While many people suggest a tax to fund projects in these locations, there is an alternative that uses market forces to create greater space for creativity.

The idea is to provide a limited number of ‘licenses’ for wealthy people to move to left-behind towns and pay no income tax or NI on their wages, as long as they prove they are spending at least 50% of their income locally with British-owned and run businesses, mostly small-medium enterprises based in the region.

If a pilot project were run where 1,000 licenses were provided to people earning over £100k per year, that would equate to a £50 million injection into the local economy of a left-behind town.

The limited number of people allowed to move to these towns should help ensure that it does not lead to widespread house-price rises that price-out local residents, while still injecting significant demand to kick-start the economy.

For high earners, the benefits are clear – low-cost housing and zero taxation, meaning their income goes much further. The scheme would be particularly attractive for so-called HENRY’s (high-earner, not yet rich) who struggle to get on the housing ladder in places such as London and face high marginal rates when they cross over the £100k income threshold.

As so many people now work remotely or semi-remotely, such a scheme is viable for many wealthy people, and offers a far more effective way to level up than failed central government efforts.

It provides a win-win for all.

Local residents get an injection of spending into their economy, creating jobs and opportunities to provide goods and services to fulfil the new £50 million of local spend.

The government achieves its levelling up agenda at minimal cost (since it will recover much of the ‘lost’ tax via payroll, VAT and corporation taxes on the spend) and effort, as it does not need to fund civil servants or other agencies to run projects, it simply lets the market do its job.

And for high earners, they get a life of luxury they could not otherwise afford, and guilt-free spending as they must spend to avoid paying tax, and they know the spending is transforming left-behind areas of the UK.

Such a scheme, were it to prove successful, could also provide a new model for wealth taxes.

Instead of levying a wealth tax that will likely lead to an exodus of wealthy people from a country, ultra-high net worth individuals could be offered a similar alternative; a flat annual tax payment, such as Italy’s £250k or so per year, plus proof that they have spent at least 50% of their income or 2% of their wealth, whichever is greater, on local businesses in the UK, in particular SMEs that are the engine room of the economy and provide the local employment and taxes the country needs.

Such an idea might be just what the country needs to get growth going; getting the government out of the way and allowing creativity and the profit-motive to drive renewal in left-behind cities, and offering a model to transform the UK, pulling wealthy people out of London and other big cities and moving into left-behind areas where they can enjoy a higher standard of living and improve the lives of local residents.

For former mining towns that have never recovered from mine closures and other places like them, this could be just the ticket for their renewal.