25 January 2025
by Tony Redondo
One millionaire has left the UK every 45 minutes, an increase of 157% since Sir Keir Starmer’s Labour Party won the general election. In 2024, the UK has lost 10,800 millionaires overseas, more than double the number in 2023 according to figures compiled by analytics firm New World Wealth for advisors Henley & Partners. No other country except for China saw greater capital flight than the UK last year. Chancellor Rachel Reeves announced plans to scale back tax rules that allow wealthy individuals to reside in the UK without being liable for taxes on income and gains earned abroad in her 30 October budget last year. David Hawkins, of Foreign Investors for Britain, a group representing non-domiciles (or non-doms), told The Times the Government’s policy is “a monumental act of national self-harm”.
Italy, Portugal, Switzerland, United Arab Emirates, the United States and Singapore are among the most attractive destinations being sought by those leaving.
Last week at the WEF (World Economic Forum) in Davos, Switzerland, Reeves suggested a watered-down approach to non doms in the finance bill will allow non doms to bring money into the UK without paying “significant” taxes. While welcome, it overlooks the fact that 10,800 people, each with assets in excess of £1 million have already left the UK, a loss to the country of a minimum of £10.8 billion even ignoring the associated spending from those people. According to the Adam Smith Institute, this has cost the Treasury the equivalent income tax take of over half a million average taxpayers.
The Sunday Times Tax list found that the 100 wealthy individuals to make the list were liable to a combined £5bn of UK tax last year. Robert Watts, who compiled the list said “This year’s Tax List poses further questions for Rachel Reeves and her Treasury team. We found our 100 biggest taxpayers together contributed 7% less than in 2024. This was largely because many companies owned by the super-rich performed less well while the economy was sluggish. Less than half of the people in our 2025 Tax List were found to be contributing more to this year’s rankings.” The rankings comprise taxes paid across individuals’ personal and business interests, including corporation, dividend, capital gains and income tax as well as some gambling and alcohol duties.
Currency Exchange Rates Update
The Pound had a steadier time of it last week in the currency markets, up fractionally against the Euro and over 2% better against the US Dollar.
What’s in the news?
UK
The ONS (Office for National Statistics) reported: –
• Net property wealth makes up 40% of household wealth (40%), followed by private pension wealth (35%), net financial wealth (14%) and physical wealth (10%).
• Median household wealth in Great Britain was £293,700.
• The wealthiest 10% of households had household wealth of £1,200,500 or more, while the least wealthy 10% had £16,500 or less.
A study commissioned by Thames Water suggests as many as one in 12 people in London is an illegal migrant, a total of 585,000. The Home Office has never produced any formal figures. Alp Mehmet, chairman of the Migration Watch think tank said “A population underestimate on this scale has colossal implications for utility and local authority planning. Utilities, housing, the NHS, GP surgeries and schools will all come under severe pressure, further risking community cohesion.”
Good news
Both the S&P Global UK Services and Manufacturing PMI’s (Purchasing Managers Index) figures rose in January. However, the important ‘new work’ component fell at its fastest rate since October 2023 and employment levels fell for a fourth consecutive month, with businesses blaming rising cost pressures.
Last week’s auction of UK sovereign debt met with significant demand with subscriptions outstripping supply by a record margin. The DMO (Debt Management Office) raised £7.9BN in cash after offering gilts that expire in 2040 with the overall order book totalled £119BN. Earlier this month, the yield on UK thirty-year bond (gilt) rose to its highest level since 1998, confirming investor nerves over the UK’s borrowing needs at a time of stagnating economic growth. Economists fear the rising cost of debt will force Chancellor Rachel Reeves to announce more damaging tax rises and spending cuts in March’s spending review, exacerbating the fiscal problems the country faces. But for now, the yield is simply too tempting to ignore.
A survey by accountants PwC showed the UK is the second most attractive country for investment behind the USA and ahead of Germany, China and India in this year’s annual poll of CEOs with around 14% of the near 5,000 corporate bosses surveyed expecting the UK to receive the most international investment in the next year.
Not so good news
Insolvency Practitioners Begbies Traynor reported that less than three months after Labour’s Budget, the number of companies facing critical financial distress has climbed by 50%According to their latest “Red Flag Alert” report, the number of businesses entering ‘critical’ financial distress in the final quarter of 2024 rose to 46,853. Their “Red Flag Alert” report looks at 22 sectors and found the biggest jump in distress in the hotel sector with an increase in this sector of 84%. In the general retail sector, the number of firms Begbies found to
be in distress was up over 47%. In 2024, the number of compulsory liquidations hit its highest level since 2014 with 3,320 businesses forced to close.
The ONS reported that the UK public sector has hired an extra 600,000 staff to 6.1m employees since the start of 2019 but productivity has plunged by 9.9% over the same period, leaving taxpayers paying more for less.
The ONS also reported that the number of people in jobs dropped by 47,000 last month to 30.3m, the steepest fall since the pandemic. The decline, which tracks the number of workers in the Pay As You Earn income tax system follows a drop of more than 32,000 in November. There were 740,000 job vacancies available in December, down from 858,000 in October, on the eve of the Budget. The unemployment rate edged up to 4.4% in the three months to November, while pay growth on the year accelerated to 5.6%.
Morrisons joined Sainsbury’s and Asda in major job cuts after the Budget. The Bradford-headquartered chain has confirmed plans to axe more than 200 roles from its retail people team. Sainsbury’s has confirmed plans to axe more than 3,000 roles as it prepares to close all its remaining in-store cafes. The major overhaul will cut 2% of its current workforce, which stands at 148,000. In November 2024, Asda also announced job cuts and asked its staff to return to the office three days a week in the latest move in its turnaround plan.
Tesco warned that Rachel Reeves’s tax raid on farmers is putting Britain’s food security at risk and must be paused. Tesco was one of three major supermarkets to call for a rethink of the policy last week, with similar warnings issued by Aldi and Lidl in an unusual show of unity by the major grocers. The three retailers collectively represent around 45% of the British grocery market and their warnings about the impact of Labour’s tax raid significantly raises pressure on the Government. British farms produce around 60% of the food consumed across the country, including most of the cereals, meat, dairy and eggs we eat.
Treasury borrowing has already shot past official forecasts made in the Budget in a new blow to Rachel Reeves. The OBR (Office for Budget Responsibility) reported that the UK has already borrowed £4.1bn more this financial year than it projected last October.
A report by the Centre for Cities says workers across the UK have suffered from stagnant or falling wages since 2008.
USA
In a video link to the WEF in Davos, President Trump said global oil prices must come down, a clear indication he wants energy prices to contribute to lower inflation.
Unemployment claims in the US rose to 223k in the week ending January 18, up from the previous week’s 217k.
US mortgage rates declined for the first time since the middle of December. The average for 30-year loans slipped down from 7.04% to 6.96% last week.
The S&P 500 stock market index in New York is poised for the best start for a new president since Ronald Reagan was sworn in to power in 1985.
On Wednesday, the Federal Reserve is expected to hold US interest rates steady after three successive cuts. Thursday sees the latest US GDP data release.
16 years ago, the US and EU economies were neck and neck. Today, the US economy is 50% larger than the entire EU combined.
The EU
Barclays expects the ECB (European Central Bank) to cut eurozone interest rates a total of six times this year starting with a 0.25% cut this Thursday.
The German economy saw improved activity in January as the Composite PMI for January rose. France also reported better than expected PMI survey numbers. The picture for the wider Eurozone is also improving, with the all-Eurozone Composite PMI shifting up a gear from 49.6 to 50.2.
In the space of just 10 days ago, Spanish prime minister Pedro Sanchez has advocated a 100% tax on homes purchased by non-EU citizens followed by a proposal for an outright ban. Sanchez wants to ban purchasers from outside the European Union from buying properties, labelling such buyers not as visitors or consumers, but as “speculators”. Housing has become a major issue in Spain with the country’s Central Bank estimating there could be a deficit of half a million houses in Spain by the end of this year. However, data from the Spanish notaries’ association shows non-resident buyers from outside the EU purchased 18,648 homes in Spain in 2023, a 7% year-on-year decline. In 2023, purchases by non-residents from outside the EU represented just 14% of the total foreign buyer market, a decline from its 25% share in 2014-2015.
Others
With favourable relations with most of the world’s major economies, India is on course to be a big winner from a global attempt to “de-risk” China and is expected to grow its economy by 6.4% by 2033.
Stranger than fiction
In the Chinese zodiac, 2025 is the ‘Year of the Snake’. For Russians, it is the symbol of upheaval. The revolutions of 1905 and 1917, the Nazi invasion of 1941, Stalin’s death in 1953, and the Soviet collapse in 1989 all occurred in a year of the snake. Is history once again coiling to strike?
On his first day in office, President Trump candidly said “We have numbers that almost a million Russian soldiers have been killed. They have more soldiers to lose, but that’s no way to run a country…I think [Putin’s] destroying Russia. I think Russia’s going to be in big trouble: you take a look at their economy; you take a look at the inflation.”
The scales of Russia’s economy are tipping toward disaster. 6% of the entire federal budget goes to caring for the wounded and compensating families of the dead. Inflation is running at 9%, interest rates bite at 23%. History suggests that when Russia’s economy suffers, civil unrest is often not far behind.
Trump signalled last week “I’m not looking to hurt Russia. I love the Russian people and always had a very good relationship with President Putin… All of that being said, I’m going to do Russia, whose economy is failing, and President Putin, a very big favour. Settle now and stop this ridiculous war. It’s only going to get worse. If we don’t make a ‘deal,’ and soon, I have no other choice but to put high levels of taxes, tariffs, and sanctions on anything being sold by Russia to the United States, and various other participating countries.”
2025 could be the year the snake fatally bites back.
Quote
Calvin Coolidge, 30th president of the United States (1923 to 1929) “Collecting more taxes than is absolutely necessary is legalized robbery.”
