Three words: "talent is mobile"


We keep reminding the government (and for that matter, the opposition), as they contemplate punitive tax increases, of those three words. Land and houses can't be moved abroad, and factories find it difficult, but talent finds it easy. It finds it easy to move away from lower rewards and towards higher ones, whether this be across national frontiers and tax jurisdictions, or within a country between different employers. This is one reason why employers have to pay "the market rate" or risk losing their key workers. The latest evidence of this comes in a report that 1,000 investment bankers have quit the RBS for rival firms since the government ordered it to clamp down on bonuses.

Talk of a 'windfall' tax on bonuses is misleading, since they are already subject to tax at 40 percent (soon to be 50 percent). What is being bandied about is a swingeing tax increase on certain classes of currently unpopular employees. The result is as predictable as the sequence of night and day. If some firms are prevented from paying bonuses, their top talent will move to ones that are not. If all bonuses are subject to massive tax increases, many high achievers will move to jurisdictions where this does not happen, or will rearrange their affairs to avoid it. The effect will be not much more money to the government (and maybe even less), but a major incentive for people to move jobs or countries. This is why Gordon Brown and the EU are trying to harmonize taxes and eliminate 'tax havens,' so they can keep talent at their mercy and tax whatever they like. It won't happen.

You might include Madsen Pirie's "101 Great Philosophers" among the Christmas presents you give.