Why MPs need to vote against the expensive folly that is HS2

Allister Heath

TRAIN and tube lines are vital for London. Most people commute by rail, and projects like Crossrail or the Northern Line extension will do a huge amount of good. We need even more of them – Crossrail II sounds sensible – and to make sure that they are financed privately to minimise the burden on taxpayers.

The HS2 high-speed train project is quite different. It fails all honest cost/benefit analyses and will do little to help poorer parts of the UK. It is a scandalous waste of money.

As the Institute of Economic Affairs argues in a report today, other factors are far more important to regeneration. Doncaster, for example, has long enjoyed a fastish rail link, with journey times to London similar to those HS2 will deliver other cities; sadly, this has failed to give it any kind of boost. One reason is skills: just 23 per cent of Doncaster’s working age residents have NVQ level 4 or above qualifications, compared with 35 per cent nationally and far more in London. Or take east Kent: even though it has its own high speed connection, its employment rate was five percentage points lower in 2010-13 than prior to the high-speed link. In the South East as a whole, employment fell only 2.1 points. Other issues were more important and cancelled out any benefit from the link.

Politicians who really want to help should vote against HS2, and come up with proper supply-side reforms to tackle the problems that continue to drag down so many parts of the UK.

MORAL panics come and go – but in the world of economics, these days, always involve trying to tax some people more. A few years back, the big issue, supposedly, was the UK’s unusual non-dom system.

The status is open to some UK residents who were born abroad; like all other residents, they pay full UK tax on all their UK earnings, including income and capital gains – but unlike others, they don’t pay UK tax on any overseas earnings. The idea was to attract wealthy foreigners – originally, Greek shipping magnates – in the hope that they would spend money here, employ people and launch new businesses.

Critics hate this set-up. Some claim non-doms don’t pay any UK tax, which is nonsense. The latest figures, published today, reveal non-doms’ income tax bills alone hit a record £6.8bn, up 8 per cent from the £6.3bn in the previous tax year, according to Pinsent Masons. Unfortunately, the newest figures are from 2011-12. But the upwards trend is clear: non-doms paid £6.2bn in 2009-10 and £5.7bn in 2008-09.

The second kind of argument is based on fairness and tax simplicity: why should two residents be treated any differently? These are valid points – but set against them is the likelihood that the existence of the non-dom status helps the economy, creates jobs and enriches the UK. This more than compensates for the unfairness.

Some argue that the big earners who come here would do so anyway, and the tax advantages make no difference. I doubt that very much.

The government introduced a special licence in 2008. Non-doms resident in the UK for seven or more years were hit by an annual levy of £30,000; this has now been increased to £50,000 for those who have been here for more than a decade. But the levy raises just £178m, a mere 2.6 per cent of the UK income tax paid by non-doms. Its introduction coincided with a big decline in the number of non-doms, though they have started to increase again.

It is always hard to disentangle the effects of stronger economic growth from tax policy. But I have little doubt that the levy and other attacks on non-doms have cost more in foregone tax receipts and jobs that they have brought in to HMRC. In an ideal world, the status wouldn’t need to exist and everybody’s UK taxes would be low enough to be competitive – but until that becomes true, retaining the non-dom status makes sense for Britain.

Follow me on Twitter: @allisterheath

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