Taxing Times

Will the coming months see a panicked exodus of big spenders from the UK, slashing their discretionary purchasing of luxury goods? I don’t think so – but there’s a bigger picture to worry about, of which more below.

The banker bonus ‘super tax’ introduced last December is already toast. The vast majority of banks have already re-arranged compensation to avoid paying bonuses, for instance increasing basic pay to shrink the bonus element. Add to that US President Obama’s recently announced Financial Crisis Responsibility fee – a much tougher penalty since it levies a tax on wholesale bank funding- and suddenly the UK looks as though it got off lightly.

The 50% tax on top earners that begins on April 6 is more of a worry. Gambling that Cameron will take office and reverse the tax, loads of big earners are deferring the tax by taking compensation in the form of interest free loans – for instance Andrey Arshavin, Arsenal's Russian midfielder. But there is no guarantee that Cameron will reverse the tax. Meanwhile, the number of directors of British businesses registered as living in the low-tax centres of Jersey, Guernsey or the Isle of Man has risen by almost 500 to 6,729 in the past year. But I was recently in St Helier and its no substitute for Jermyn Street. I don’t think for a second that spending habits will be radically different than before, especially among top earners.

The bigger picture is the one to watch.

There’s an upsurge in bookshop sales of Stoic texts by the likes of Roman Emperor Marcus Aurelius and Seneca, who emphasised virtue over possessions. Their resurgent popularity may foreshadow a coming mood of severe austerity as deficits and middle class taxation begins to bite. There’s also a ground swell movement dubbed the New Economics, (see www.neweconomics.org) emphasising wellbeing over money and spirit over materialism. Every luxury brand has to heed this atmosphere, search its soul and act accordingly in product development and marketing alike. Brands need to emphasise longevity, restraint, classicism, value and ethics. Outside Asia at least, bling is out for the count.
The danger is that luxury itself comes under scrutiny and loses – not among the high rollers but among the aspirational buyers so recently brought into the fold.