I want to ask a question in this piece and, I hope, answer it. I have touched on this topic in a previous post when Brits were being evacuated from Libya but, with the election coming and the recent discussion about Non-Doms, I thought I would revisit it in a bit more detail. That question is:
Should British citizens continue to pay British taxes even when they are living and/or working abroad?
I think they should and I hope I can make a decent case for why, but I want to make clear what I am suggesting which is:
- Brits working abroad should pay British taxes on their residual income after paying the local taxes for where they are living.
- Those eligible could self-assess and submit tax returns and payments exacltly the same way that people with variable incomes do now.
- The personal allowance for those working abroad need not be the same as for those working at home.
The usual answer to that question is that they shouldn’t pay because they don’t enjoy the benefits of those taxes. I want to challenge that view by going through the biggest parts of expenditure in turn and looking at them with ex-pats in mind. The figures I am using come from this pie-chart for central government spending 2014. You can find it, and the data behind it here
26% Pensions £143 billion
- Some of this the state pension. The state pension is not paid out of a pot of money built up from contributions, the tax people pay now is used to pay the state pension now. Most ex-pats will return to the UK and eventually claim this, or will have parents who are currently receiving the state pension – so why shouldn’t they pay the tax?
- Most of the rest is public sector pensions which the government is responsible for because they are, in effect, the employer such as MPs, civil servants, teachers etc. Your average ex-pat is probably working in the private sector and so won’t be receiving one of these, but the average person in the UK is also working in the private sector so they won’t be getting a public sector pension either – but they still pay their taxes
23% Health Care £127 billion
- This is almost entirely spending on the NHS. Ex-pats, being British citizens, are entitled to free treatment on the NHS. While they are abroad they will probably pay for routine, minor, medical treatment where they are but, should they require long term or expensive treatment they can, and do, return to Britain for that free NHS treatment. It is also a fact that most of the costs of NHS treatment is spent during a person’s last few years of life when the ex-pats usually return to Britain. So why shouldn’t they pay the tax when they are young and healthy, like the rest of us?
11% Welfare £58 billion
- This includes all the things you would expect. personal services like care for the sick and elderly, and benefits like social security, tax credits, and housing benefit. Now the ex-pat is certainly not going to be accessing those but, as with pensions they may well be later in life and may have relatives claiming them now, and, again a healthy, well paid person living in the UK will not be receiving these benefits either, but they still pay their taxes.
8% Defence £44 billion
- The primary reason for defence spending is to protect the country from invasion and/or destruction from foreign forces. I assume that most ex-pats would quite like there to be a Britain for them to come home to. It is also the case that when there is trouble where the ex-pats are living, as was the case in Libya, it is expect that the armed forces would be used to get Brits out of harms way, so the ex-pats are actually more likely to benefit directly from defence spending. So why shouldn’t they pay the tax
8% Education £42 billion
- It is true that ex-pats are quite likely to pay for their children’s education while they are abroad, either by sending them to public school back in the UK or in local English language schools. However I suspect most of them went to school themselves at sometime and, yet again what about the people back home, some of them don’t even have any children, but they still pay their taxes.
In summary, an ex-pat working abroad has no more reason be exempt from tax than anyone in Britain, provided that person is
- Well paid
- Healthy (or in BUPA)
- Childless (or privately educating their children)
I just see this as an extension of the argument for taxation in the first place. Tax is the price we all pay for the benefits of citizenship. We don’t pay just for what we need, we pay for what all of us might need, and we never need some of those benefits – be grateful, smile, and pay up.
I don’t know how much money this would raise, but I think it might be quite a lot. It would also remove one of the arguments against higher taxation on the very rich, that they will just move abroad to avoid paying.
I happen to think I am incredibly luck to be a British citizen. look around the world and realise just what a privilege it is. I think we should all be glad to pay our taxes.
I am not an economist (you can tell can’t you) but I don’t think these ideas are stupid ore economically illiterate – as always I would welcome criticism and comment.
And, if any of the political parties are interested – I’m available – reasonable rates – happy to pay top rate income tax . . . .