It's obviously not for the weather, so what is it about Britain that the obscenely wealthy find so attractive?
guardian.co.uk, Friday 24 February 2012 22.58 GMT.
According to the Socialist Worker, if you earn £150,000 a year, you are rich. But in the rarefied world of serious money, you are not super-rich until you have at least £100m. Photograph: Nick Ballon
Here's something you definitely shouldn't do if you're even a tiny bit leftwing and suffer from high blood pressure: look at a document called the Forbes cost of living extremely well index. Forbes is an American business magazine, and it's cost of living extremely well index is an annual survey of price trends for things popular at the very, very top end of the income distribution. The riveting thing about the CLEWI isn't the headline attached, because that tends to be the same every year. The headline news is usually that very expensive things have gone up at a rate higher than the rate of inflation – often by as much as double. Common sense leads us not to be surprised at that, since people who don't care what stuff costs will logically not mind too much if the cost of that stuff goes up. What's gripping about the index – a basket of 40 goods and services targeting the super-rich – is the detail of what's on it.
In fact, that's always true for these indices. The fun is in the specifics. The UK Office for National Statistics publishes my favourite one. This measures inflation using a basket of goods in common use – a category that is constantly shifting, and at the moment includes mobile phone downloads, sparkling wine and long-sleeved cotton shirts. There is, in a wonky way, something moving about the close attention the resident stattos give to detailing the realities of ordinary lives; it's like a novel about British domestic life in 2012. Oven-ready joints of meat, for example, burst on to the index last year with this explanatory note: "Replaces pork shoulder joint reflecting a longer-term movement to prepared food and replacing an item which was sometimes difficult to collect since joints are sometimes only available towards the end of the week and on weekends." Someone has really thought hard about that. It's reassuring to contemplate a household that has managed to buy every single thing on the index, from hardback fiction to hair conditioner, from a provincial newspaper to women's high-heeled shoes to dried fruit (all those being new additions in 2011).
The super-rich index is made up of items that are, let's say, different. A Russian sable coat at $240,000, a facelift for $18,500, a thoroughbred yearling racehorse at $319,340, a Sikorsky helicopter at $14.8m, an arrangement of flowers changed weekly for six rooms at $98,100 or a year's tuition at Harvard at $56,652. It is, in a dark way, hilarious that a Harvard education counts as a luxury good. If all that starts getting too much, you can always decompress with a week at the Golden Door Spa in California, $6,750, or 45 minutes with an Upper East side shrink for $325. This, too, is like a novel, a novel about people whose lives are full of stuff you don't want to own and things you don't want to do. It's a novel, I find, that I don't particularly want to read.
I also didn't want to write it. A few years ago, when I set out to write a novel about contemporary London, my point of departure was to think about who I wanted to be in it. I wanted to have characters who were lucky and unlucky, immigrants and natives, mindful and oblivious, poor and rich – but the question there quickly became, just how rich? London is full of the 1%, the people at the top of the income distribution, whose circumstances are at the moment so much on the agenda for the other 99%. But the thing is that while the 1% are rich by everyone else's standards, they are not rich by the standards that rich people use themselves. To be in the 1%, in income terms, you have to earn – or, as the Socialist Worker has it, "earn" – £150,000 a year. That's a lot, to most people's way of thinking – but not to the way of thinking of the rich. I've asked quite a few people in the world of money, the kind of people who know properly seriously rich people, what counts are being properly, seriously rich. The consensus figure is that you need $100m. At that level, even the seriously rich agree that you are rich. Anyone with that amount of money is obviously way, way past the point where they will never have to think about any of their material needs, ever again.
There are more of these people in the UK than there used to be, and they have more money, too. In 1990, to come in the top 200 of the Sunday Times's annual rich list, you needed £50m. Now you need £430m. Income levels for most social groups have stagnated in the last few decades, but the super-rich have continued to get sharply richer, and to own an ever increasing share of the economic cake. This reverses the trend of the preceding few decades – and by the way, the fact that the process has continued in that direction, even as the economy contracts and average household incomes decline, refutes the whole rationale for the laissez-faire attitude to high incomes. The argument for allowing the rich to grow richer is that it starts a process where everyone else grows richer, too – but this simply hasn't happened. In fact, they're growing richer while everyone else grows poorer. "Economic imbalances and social inequality" were the top global risks cited at the World Economic Forum this year; there were 70 billionaires in Davos, so it's a subject they know something about.
As for what this has got to do with London, the answer is, perhaps too much. The capital of the UK has one of the world's largest concentrations of the super-rich, and the reason for that is that we have chosen to have them here, as a matter of deliberate government policy. The relevant policy is the notorious provision in relation to "domicile", as a definition of an individual's tax status. Every other civilised country in the world taxes its inhabitants on their income and capital: the basic rule is that if you live in a place, you pay its taxes. But it's different in the UK. Here, if you come from overseas, and can prove strong links with overseas, and can prove that you are going to return to overseas, and can therefore establish a "domicile" overseas that is different from your "residency" in the UK – well, in that case, you are treated entirely differently for tax purposes. You pay tax on your income in the UK, like the rest of us; and you can remit capital to the UK; but your overseas income, as long as you keep it overseas, is out of the reach of the Inland Revenue.
What this policy amounts to, in practice, is that the UK has a gigantic sign hanging over it saying, "Rich People! Come and Live Here! You Won't Have to Pay Any Tax!" It is an extraordinary policy for any developed nation, and not one that anyone else has been tempted to adopt. Other countries have low tax rates to attract businesses – in the EU, Ireland and the Netherlands stand out – but the only countries that have anything even vaguely resembling the British policy towards the super-rich are places that are openly accepted as tax havens, such as Monaco and Switzerland. (And even in Switzerland the tax policies vary canton by canton, and are regularly put to the vote.) Tyler Cowen, a respected American economist with a popular blog, Marginal Revolution, describes Britain quite simply as a "residential tax haven". A glance at any list of this country's richest residents will not confirm this fact, because it's impossible to know the private details of individual tax arrangements, but it is striking that of the 12 families and individuals at the top of the Sunday Times rich list, only two are citizens of the UK. The others, clearly, are attracted here by the weather.
The remarkable thing about this policy is twofold: first, it has been consistent across government after government, for decades; second, nobody ever defends or explains it in public. Every few years there's a small populist flurry of complaint against the domicile laws, and the government mutters something, and even very occasionally does something, such as introduce the £30,000 annual fee for domicile, rising later this year to £50,000. But to the super-rich such sums are – as a brief glance at the CLEWI will show – significantly less than the florists' bill at any one of their many properties. Parties deplore the domicile policy when they're in opposition but leave it intact in office.
Why? Because they think the super-rich bring more than they take away. The Treasury documents on domicile don't tell us much, and they sum up the benefits of the policy in a single sentence. "The government recognises that non-domiciled individuals ('non-domiciles') can make a valuable contribution to the UK economy – through the money they spend here, the funds they invest, the skills they bring as employees and the tax they pay." Leaving aside the huge question that immediately raises – why are we the only country which sees it that way? – the most important of those criteria is the first of them: "through the money they spend here."
"Funnily enough, though everyone remembers the Arabs, it started out with Greek shipping magnates," Michael Wilson, an accountant, told me. "That was when the Treasury first latched on to the fact that we could attract these sorts of people through the non-domicile rule. Then Arabs started coming here after the oil price shock of 1974. Then it was Asians, then Russians. It's to do with the amount they spend here."
Why doesn't it bring Americans here?
"Because American citizens pay tax on their worldwide income, wherever they are," he said, then shrugged, and added, "If every government in the world followed that policy, things would look very different."
It's strange that the Treasury doesn't publish any studies on the amount spent in the UK by affluent non-doms, but the effects are everywhere apparent in London, and are compounded by the presence of a second group, that of the international super-rich who don't live full-time in the UK but who own a property here. This group are a big part of the reason London, at least in its central areas, is so insulated from the economic troubles affecting the rest of the country. They are buying in London for a number of linked reasons, including the robustness of the legal system and the stability of the political system, but the crucial reason for the current boom at the top end of the capital's property market is sterling's decline in value. Central London property might seem insanely expensive to us, but we aren't paying for it in euros. At its nadir, sterling had lost 30% of its value against both the dollar and the euro – that's amazing, considering that a devaluation of only 14% destroyed the Labour government's reputation for economic competence in the late 1960s. The euro has weakened a bit since, but London property is still, for anyone paying with foreign currency, a bargain. Last year, half a billion pounds of property was bought in London by Greek and Italian buyers alone. A large part of their motive, we can be sure, was simply to get their money out of their own country and out of the euro; the acquisition of a bolt-hole here is a pleasant way of hedging against troubles at home. It was buyers of this sort, mainly targeting super-premium areas such as Mayfair and Knightsbridge, who last year made London property prices rise more than those in New York, Paris or Hong Kong.
It's these two groups, non-doms and the internationally mobile, who mainly make up the London super-rich. They aren't the 1%, or even the 0.1%, but the 0.01% – the few thousand richest people in the country. We go out of our way to entice them here: that's what the non-dom rule is for. But there are almost no studies of their effect on the UK; of their impact on the debate about inequality and fairness; of their impact on the capital of having a group of people who simply don't have to pay any attention to what things cost. One of the salient qualities of life in London, remarked on by long-term residents, by newcomers and by tourists, in short by everybody, is how expensive everything is. City pay is a big part of that, but the international super-rich contribute to it, too. The money they spend is obviously welcome, but it seems to me possible that it comes at too high a price to the rest of our polity. Inequality feeding down from the top of the income distribution is provably linked to a whole range of negative consequences for society, from higher rates of mental illness and incarceration and family breakdown to alcoholism, drug abuse and suicide. By choosing to have the tax system we have, we are choosing to make these problems worse; and we are concentrating the top of the inequality range in our capital city. The consequences of this need some real study. And yet it's infinitely better to live in a country where people want to be, rather than a country that people want to flee – and these people's presence here reflects that fact, too.
"Community", that loaded word so beloved of politicians, is simply not a reality in most people's lives. It's normal for us to be cut off from each other. The super-rich, however, are so cut off that they are barely living here at all. Everything that can have the word "private" attached in front of it, they have: schools, hospitals, jets, islands. Even things like the shops, which you'd have thought was one of the attractions of London for people who can afford it, function differently for the 0.01% – for the most part, they prefer to have stuff brought to them.
Fitzgerald said to Hemingway that the rich are different, and Hemingway replied, "Yes, they have more money." The realities of the overwhelming majority of lives – realities that in large part, and especially in hard times, are to do with money – have no bearing on them. Most people find they have to worry about money; if you don't ever, then in some fundamental way you are cut off from most people. Perhaps the biggest difficulty caused by the presence of so many of the super-rich is to do with the fact that they prove, precisely and completely, that we aren't in it together. We were much less aware of that while we all, on average, were doing slightly better year by year: while the cake was growing for everybody. Now the cake is shrinking, but the super-rich are still getting richer. I don't think this issue is going to go away.