High taxes drive entrepreneurs away

As Prime Minister Kevin Rudd and Treasurer Wayne Swan consider increasing tax rates for high-income earners, they should take a look at how a similar hike in Britain threatens to drive some of the country’s best entrepreneurs away.

British Chancellor Alistair Darling has increased Britain’s top tax rate from 45% to 50% as he desperately tries to plug holes in the British budget. The nation’s net debt stands at ?743.6 billion following the global financial crisis, and the tax hike is designed to raise around ?2 billion in new tax revenue.

But the hike has been condemned by British entrepreneurs, led by Virgin Group founder Richard Branson, who declared the tax hike would “block the next wave of entrepreneurs”.

“In a very mobile world, where talent can move countries easily, we need to ensure we do not put off the business-builders from setting up in the UK,” he told Britain’s Telegraph newspaper.

“Higher taxes may be politically attractive in the short term, but I think this could be a real hindrance to the next wave of UK entrepreneurs and international companies looking to invest in the UK.”

But entrepreneurs aren’t just talking – they are also walking.

Hugh Osmond, who the Sunday Times describes as a “pubs-to-insurance” entrepreneur, is planning to move to Switzerland. Peter Hargreaves, co-founder of financial services group Hargreaves Lansdown, is off to the Isle of Man or Monaco.

“Why wouldn’t I leave?” Hargreaves told the Sunday Times. 

“If I stay I’ll pay half a million more a year in tax. If I leave the country I can save £3 million a year. It’s almost like the Government is offering me a bribe worth £3 million a year to go and live abroad.”

Hargreaves joined a number of wealth managers and investment consultants in predicting that business people will flee the higher taxes. While SME entrepreneurs have less ability to move offshore (mainly because their businesses are reliant on the local economies and can’t really be run from another country), they are also spitting chips.

The following quote from Steve Harkin, owner of Saxon Oil, a lubricants firm in Coventry, summed up the mood perfectly.

“The people who spend their nights worrying about how to pay the bills are the ones now being told they will be hit with an extra penalty as soon as they pay themselves more than £150,000. What’s the incentive to go and take risks if you’re just going to be penalised for doing so?”

Rudd and Swan should be asking themselves the same question.