Monday, April 07, 2014


BLOG 146

There was a curious article in the Evening Standard recently by Simon Jenkins that caught my eye.  Simon was bewailing the fact that where he lives, The Royal Borough of Kensington and Chelsea, has become what he calls “Ghost Town”.

He surmises that his paucity of neighbours is because “most of the properties, in some cases entire blocks of flats, are money-laundering tax-avoiding scams”.  He then explains (I assume from surreptitious peeping through letter boxes as I cannot see how else he might know) “as junk mail lies empty and leaves piles against front doors, entire postcodes are little more than Swiss bank accounts before the Swiss were forced into disclosure”.

This seems to reflect a number of misconceptions.  Firstly there are far easier ways to launder money than saving it up until it accumulates to several million pounds and then buying a London property.  It is hard to acquire a London property without using both a solicitor and an estate agent, both of whom are legally required to satisfy themselves that they are not dealing with the proceeds of crime.  Secondly, I find it hard to see how buying a UK property can enable anyone to avoid tax.  In most cases this is in any event not UK tax; it is foreign tax because by definition (or at least by Simon’s definition), the owners of these empty properties are not UK residents.  Assuming however that Simon is right, it is not possible to create a “money-laundering tax avoiding scam” because money-laundering is using (or hiding) the proceeds of crime, and avoiding tax is not a crime.  It is however somewhat worrying that, as, I assume, a responsible journalist, Simon believes that there are such a large number of scammers that the likelihood of most houses being bought by people wanting to live in them on those occasions (in some cases rare occasions) when they visit London is so remote that the only realistic purchasers are people who have made money through operating scams.

Finally Swiss banks have not been forced into disclosure, at least to the UK authorities.  The agreement that Switzerland has entered into with the UK to assist the UK in collecting tax has been framed in such a way that Swiss banks disclose nothing to the UK tax authorities – although they do disclose to the Swiss Central bank an aggregate figure of tax that is owed to the UK by the bank’s UK customers but without identifying the customer.  Switzerland places great store by bank secrecy.  Some individual Swiss banks have disclosed details of US customers to the US tax authorities, but the Swiss courts have held that they have done so illegally and as a result they face prosecution.

Simon then leaps to, “the billions now financing London’s faceless towers … are mostly fleeing taxes and disclosure rules elsewhere in the world”.  By “faceless towers” I think that he means apartment blocks.  There are a lot of those being constructed near where I work.  They are all being built by major developers and, personally, I imagine are being financed by major banks.  I cannot think of any rational reason why a large developer should seek out those who are fleeing taxes (I don’t myself have the faintest clue how to find such people, let alone tap them for money) when they have the ability to borrow from reputable banks.

O.K. Simon doesn’t really mean “financed by”; he means “sold to”, as is apparent from his supposition that a sheikh or an oligarch would wish to live in Knightsbridge, not in Bermondsey or Nine Elms.  I am sure that he is right there.  But I am equally sure that there are a large number of wealthy foreigners who, unlike Simon, cannot afford to buy an apartment in Kensington and Chelsea.  (I am not even sure there are such things) and would happily have a UK pied a terre in Bermondsey.  Unlike Simon, I have little doubt that the vast majority of the empty properties that annoy him have been bought as pied a terres by people who do not wish to live in London but do wish to feel at home when they visit our great city.

As a liberal, Simon makes clear that he is against banning people from buying properties (although some might think that seeking to incite the mob by writing articles accusing them of fraud with no basis whatsoever for such an accusation is getting pretty close to it), but he is strongly in favour of taxing them.  Fair enough, but how?  Simon seems to quite like a wealth tax of, say, 1% a year on house values over £2million (he is too coy to explain whether Chez Jenkins falls into that category).  He is against a mansion tax because “it will push the cash-poor overnight out of rich areas.  It will be a “bedroom tax” for the middle classes”.  I am a bit lost here.  Why should a 1% mansion tax on a £2million house hit the cash-poor, but a 1% wealth tax (£20,000 p.a.) would not do so?

But that is a philosophical question of no relevance here.  Because Simon is opposed to taxes that “go to the Treasury”.  He wants house-owners to pay taxes to boost the “hard-pressed revenues of London councils”.  He does not think that foreigners with empty houses in Kensington and Chelsea should contribute to the well-being of the poor in say, Grimsby.  The taxes of the Sheikhs and oligarchs for their palatial residences in Kensington should be used solely to ease the plight of the not-so-poor who can afford to live in Kensington and Chelsea!

Simon actually wants a higher council tax band on any house worth more than “roughly £1million or more”.  I am a bit puzzled by that “roughly”, as taxes generally require certainty to be able to enforce them.  However, whatever it means, Simon admits that it will hurt him and his friends, who apparently all live in properties worth more than that.

I then got a bit lost.  Simon explained that for his house he currently pays Council tax of £2,133.  The top rate in Brent where I live is £2,715, and it is a much poorer borough than Kensington, which suggests that the council tax is an unfair tax if it is so lenient on the rich residents of Kensington.  Indeed, it undoubtedly is because it is based on 1991 values as no government since then has had the guts to revalorise the bands and they are clearly wholly unrepresentative of the current mix of properties.  But that is by the way.  Simon thinks that if he lived in New York, his property tax would be $10,000 - $30,000 (£6,000 – 18,000).  Even if his council tax had been indexed (i.e. his Tory council had been more profligate) he would expect to pay £5,000 p.a.  He thinks that an oligarch ought to be paying £40,000 a year in British tax.  Actually I suspect that most are, because the ATED on a house worth over £5million is £35,000 p.a. and that on one worth over £10million is £70,000 p.a. and there is council tax on top.  As Simon calls for only one extra council tax band, I am left bewildered as to what he believes he ought to be asked to pay – it seems to be the £40,000!

Simon ends his article by explaining that, “we are not seeing the poor driven from London.  We are seeing an area of rich west London becoming a very peculiar place.  The rest of the city can go about its business unconcerned.  I doubt if there are many oligarchs in Catford”.  I doubt so too.  But I also doubt that he is right in thinking that we are not seeing the poor driven out of London.  Simon points out that, “a decent flat can still be bought in parts of Camden for under £300,000” and that if a family is taking home £45,000 after tax (which is around £54,000 gross) it should not be seeking to buy an average property but should look lower down the spectrum.  I do not claim acquaintances amongst the poor, but I think that most of the people I know are earning way below that, and I can see for myself that such people being driven out of London (assuming that by that Simon means out of Central London into suburbia (where I can afford to live) and those parts of the Home Counties within ready commuting distance of London).  If Simon does not realise what most people earn, It would be fairer not to write about things that are outside his experience.



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