Rachel Reeves torn over £22bn black hole quick fix that ‘does more harm than good’

Robert Novoski

Braverman doesn’t believe Rachel Reeves about the £20 billion black hole

Rachel Reeves’ ambition to plug the much-publicised £22bn “black hole” she claims is a legacy of the Conservative Party with a controversial exit tax will make matters worse, a financial expert has warned.

Nigel Green, CEO of deVere Group, one of the world’s largest independent financial advisory and asset management organisations, responded to reports that economists and think tanks had urged the Labor Government to introduce a levy to raise as much as £500m a year and prevent departures.

Reeves wasted no time in pointing fingers at the outgoing government after taking office in July and has cited it regularly as he tries to justify controversial measures including affordability testing of the £300 annual winter fuel payment.

Currently, wealthy entrepreneurs and investors in the UK can move abroad for tax purposes before making capital gains, and as many as three quarters return to domicile in countries that pay no tax at all, a report published by the Center for the Analysis of Taxation has found. say.

Such a policy – ​​already implemented by Australia, Canada and the US – would reduce incentives for wealthy people to emigrate in response to other tax changes, the group claims.

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Chancellor Rachel Reeves

Chancellor Rachel Reeves (Image: ANTHONY DEVLIN/POOL/EPA-EFE/REX/Shutterstock)

However, Green is not convinced of the benefits of the policy.

He explained: “While this may sound like a quick fix to help close the £22 billion budget gap, these proposals not only fail to address the core issues but also risk pushing the UK into an economic trap that will have long-term consequences.

“Proponents of an exit tax miss the point.

“At a time when economic growth needs a boost, and international competition for talent and human resources is at its highest, this tax will do more harm than good. “

Rachel Reeves, Mr Keir Starmer

Rachel Reeves and Sir Keir Starmer at the Labor Party’s annual conference (Image: Getty)

The problem that academics and policy advocates don’t realize is that such policies “prevent people from coming to the UK”, Green said.

He continued: “Worse still, it sends a negative message to the global investment community that the UK is hostile to wealth creators and innovators. Therefore, it is fundamentally flawed.

“Exit taxes, in essence, penalize individuals who choose to move – often for legitimate reasons, such as family, business opportunities, or the desire for a new lifestyle.”

By implementing punitive measures against those who withdraw, the government may believe it will close the income gap, but at the same time ignore the broader economic impact of such measures, Green said.

Wealthy individuals and families are not only high earners but also job creators, philanthropists, and investors in key sectors of the economy, including real estate, technology, and startups, he said.

Mr Green added: “Preventing their arrival or encouraging their departure through tax penalties risks undermining the foundations of the UK economy.”

Moreover, this exit tax proposal assumes that the rich have limited choices – something that is not the case in a highly globalized world where high net worth people have the resources to move to countries that offer more favorable tax regimes. profitable.

Mr Green stressed: “If the UK introduces an exit tax, it will be competing with countries such as Switzerland, Singapore and Dubai – countries that offer low taxes and a friendlier environment for wealth and investment.

“This will result in losses far exceeding the projected annual revenue of £500 million. The real loss is a reduced tax-paying workforce, less investment, and ultimately, the UK becomes less competitive.”

“Instead of imposing exit taxes, governments should focus on policies that encourage wealth creation and attract global talent.”

Explaining what the Chancellor must do, he said: “Rachel Reeves and her advisers must look for ways to make the UK a more attractive destination for high-net-worth individuals by improving infrastructure, simplifying the tax code and reducing the regulatory barriers that hinder business growth.

“The economists who champion this tax seem to forget that wealth is mobile, and that individuals and businesses will move if they feel burdened or unwanted.

“An exit tax is a misguided proposal and may generate short-term revenue but come at the expense of long-term economic growth and competitiveness.”

Reeves is due to deliver his first Budget on October 30 and used his conference speech last month to warn of “tough decisions”, but rejected a return to austerity.

“Yes, we have to deal with the Tory legacy and that means difficult decisions, but I won’t let it dim our ambitions for Britain,” he said.

“So this will be a budget with real ambition, a budget to repair the foundations, a budget to deliver the changes we promised, a budget to rebuild Britain.”

He has specifically ruled out implementing a wealth tax, although his left-wing party has debated it.

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