Should we welcome Britain's billionaires?

FINANCE:According to BBC Business Editor Robert Peston, Britain's super rich may consider taking up residence here, but do we really want them?

In Britain, billionaires have become a political issue. Outraged at being asked to pay tax, some of London's new class of super-rich are threatening to leave, with Dublin high on the list of their possible destinations.

The questions posed by Robert Peston, the BBC's business editor, are ones that Bertie Ahern would do well to ask before he throws them the key to the city of Dublin.

Over the past decade, the British government, first under Tony Blair and now Gordon Brown, has bent over backwards to accommodate the private equity and hedge fund business. The City of London has become a serious rival to Wall Street as a global financial centre.

The problem for Brown and his chancellor Alistair Darling is that many of these non-domiciled citizens, or "non-doms", pay little or no tax on their enormous wealth.

Their presence has become an insult to the vast majority of the population whose tax burden has increased under Labour and who have been crowded out of many parts of London and the southeast of the country as the extraordinary wealth of the few has changed the social and economic landscape. This has pushed up house prices in some areas to a level unattainable to anyone earning less than half a million pounds a year.

The resentment toward this group, and by extension the government which has encouraged them, should not be overemphasised says Peston in his new book Who Runs Britain? But with recession a distinct possibility, the widening gap between the haves and the have-nots could become potentially explosive.

Particularly, if as is becoming clear, the downturn could be blamed on the reckless use of credit by those very same private equity pioneers.

He quotes research by accountants Grant Thornton that "54 UK-based billionaires were paying income tax of just £14.7 million (€19.2 million) on a combined fortune of £126 billion (€165 billion) and only a tiny number paid any capital gains tax at all. Of these, at least 32 of the billionaire dynasties had probably not paid any personal taxes on their wealth".

Darling, the chancellor of the exchequer, has proposed a modest flat-rate tax of £30,000 (€39,180) a year, a figure that sent shockwaves through the City, in anticipation of an exodus.

According to Peston, the problem with this debate is that it is based on emotion and prejudice on both sides, and not much solid fact.

He says there are around 120,000 non-doms (non-domiciled citizens) in the UK, but within that group there are many different kinds of people, and certainly many of them are not billionaires or even millionaires.

There are doctors working in the National Health Service and academics on secondment for long periods, for example. The notion that all the non-doms are super rich is wrong. And the notion they are all wealth creators is also wrong.

"There is a reasonable number who pay astonishingly little tax," says Peston, talking to The Irish Times in London.

Among that group there are wealth creators who run proper businesses and employ lots of people, he says. For example, some of the hedge funds are run by non-doms. These can employ up to 300 people, most of whom tend to be well paid and who pay tax in the UK.

"Those type of businesses could move to Dublin, or Geneva like that," he says clicking his fingers. "They'd rather be in London but don't have to be."

Similarly, quite a few private equity firms could re-locate, with Dublin cited as a commonly discussed alternative. The bigger issue is not one of revenue generation. It is potentially more damaging and fundamental to Gordon Brown and his New Labour government than that. It is about fairness.

"The issue is simple," says Peston. "If the rest of us pay a certain amount of marginal tax for being a member of the club of Great Britain, benefiting from the infrastructure, the health service and an educated and civil society, why should there be other members of that club who essentially get a free pass?

"The argument is not that they should pay more tax than the rest of us, just that they should pay some. It's not unreasonable."

The issue of taxation leads to supplementary questions as to the broader value of this elite group of people to the country. It forces politicians to focus on what kind of incremental benefit those with a free pass bring to the economy. "How much you want to make them pay must be set against the risk of them being driven abroad. It's a difficult question," he says.

Peston feels that Britain's political leaders have shown a lack of confidence in the "intrinsic merits of being in the UK".

"The notion that putting some pressure on those who pay no tax would mean they would flee the country I think is wrong. Straightforwardly wrong," he says, criticising the media's coverage of the issue for relying on unscientific research, most of which would have London City airport compared to the fleeing of Saigon.

"Not a single individual has come out and said they will leave the country," he says. "This coverage is very impressionistic stuff. If you ask anyone if they want to pay tax, it's not surprising that they say no.

"People in government clearly think this issue of fairness is important, but polls suggest it is not an issue that determines how people vote."

It's interesting to note that the non-dom witchhunt was started by the Tories and not the Labour government, which Peston believes tells us that it is a cross-party issue, not a debate that is following traditional left and right lines.

"Ronnie Cohen, the pioneer of private equity, said that the division, the gulf between super rich and poor will result in riots on the streets. It's interesting that he should say that.

"The economy is at a turning point, slowing down. If we were to see a recession with higher levels of unemployment, there may be an increase in serious social unrest. The perception is also that the economic problems we now face are as a result of the risks that the people at the top took while making their money. That might spill over into genuine discontent."

So as some of the world's richest people weigh up whether to move to Dublin, Peston poses a final far reaching question: "Is Ireland an envious society?"

We may be about to find out.

Who Runs Britain? How the super-rich are changing our lives by Robert Peston is published by Hodder and Stoughton. £20