Britain has become a textbook example of what happens when politicians believe capital is imprisoned by geography. Billionaire hedge fund manager Chris Rokos is leaving the UK and moving his tax residency to Greece. This is a man who reportedly paid about £330 million in British taxes last year, ranking him among the country’s largest individual taxpayers. He also pledged £190 million to Cambridge University. Britain should be asking how to keep people like this. Instead, government keeps looking at successful people as if they are nothing more than an ATM that cannot walk away.
Greece understands something London has apparently forgotten. Capital goes where it is treated best. Greece offers qualifying wealthy newcomers a flat €100,000 annual tax on foreign-source income for as long as 15 years, provided they satisfy the requirements, including a substantial investment in Greece. Foreign assets can also receive favorable inheritance-tax treatment. Athens has now gone even further to attract the financial industry, introducing a 5% tax on bonuses and carried interest for qualifying private-equity and hedge-fund executives who relocate as part of substantial Greek operations. Britain has been moving in precisely the opposite direction.
This is not some abstract economic theory. Rokos reportedly paid himself £477 million last year and handed roughly £330 million to the British taxman. Now Greece gets the wealthy resident, potentially an Athens office, employees, spending, investment, property purchases, and all the economic activity that follows capital. Britain gets to congratulate itself for being “fair” while watching one of its largest taxpayers leave. Politicians never understand that the objective should be to expand the tax base, not destroy it.
Foreign income and gains become exposed to UK taxation after the new four-year window, and longer-term residents can also bring worldwide assets into the inheritance-tax net. Meanwhile, Britain already has a 45% top income-tax rate in England, and carried interest is taxed far above Greece’s new preferential 5% rate for qualifying executives. Then politicians float wealth taxes and wonder why wealthy people start calling Athens, Milan, Dubai, and Switzerland.
This is exactly how capital flight begins. It does not require people loading gold onto ships in the middle of the night. Today capital is electronic and international. A hedge fund manager can change residency, establish another office, move key employees, redirect investment, and eventually move an entire ecosystem around him. Governments remain trapped in this medieval idea that because somebody became wealthy in Britain, Britain somehow owns that person forever. It does not.
The socialists always imagine they can make the rich “pay their fair share.” Fine. Rokos paid approximately £330 MILLION in one year. How much more constitutes his fair share? According to one estimate raised in Parliament, replacing that tax contribution would require the income taxes of roughly 38,000 average workers. When somebody paying hundreds of millions leaves, government does not magically collect the same money from an empty chair. The burden ultimately shifts toward everyone who cannot leave.
Greece is doing what governments SHOULD do when they need investment: compete for it. Athens wants these people to actually establish operations there, which is why the new financial sector incentives include requirements intended to ensure that firms have a genuine economic presence.
Britain is suffering from the same disease spreading throughout Western Europe. Debt keeps rising, government refuses to seriously reduce itself, and therefore politicians constantly need another source of revenue. They raise taxes because reforming government is politically difficult. When revenues disappoint, they raise taxes again. Eventually confidence breaks and productive capital begins leaving. Then the remaining taxpayers must carry an even greater burden.
Greece was the poster child of the European sovereign debt crisis not long ago. Now Greece is standing at the door welcoming capital while Britain is effectively showing it the exit. That should embarrass every politician in Westminster. You cannot tax a nation into prosperity, and you cannot confiscate capital that has already bought a ticket to Athens.