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Tuesday 7 October 2008

Fleecing non-doms is the thin end of a bad wedge

Allister Heath says that Brown’s poll tax on Britain’s 114,000 non-domiciled residents will drive away talent when our economy most needs it. Shame the Tories would do the same

Given how hard all economies, including Britain, strive to attract high-net-worth investors and the highly skilled these days, it is difficult to fathom why any government in its right mind would wish suddenly to begin penalising those it has sought to woo for so long. What is most absurd about this is that the Treasury readily acknowledges, in the very same document laying out its tax hike plans, that ‘in an increasingly globalised economy it is crucial for the UK’s competitiveness that the UK continues to attract international talent to this country’.

Rarely has there been a policy so glaringly incongruous with the government’s stated objective. In fact, no tax expert I have spoken to can recall any Treasury proposal in recent history which so openly and casually acknowledged it would trigger an exodus of thousands of successful and wealthy taxpayers.

Brown’s decision instead to play the class war card has gone down well in some quarters, including among middle-class professionals jealous of their non-dom neighbours’ tax privileges and angry at being priced out of the best homes and schools. But by making the City a less attractive place to work, and by signalling an ideological shift towards higher taxes on the wealthy, it bodes ill for the long-term future of the British economy.

Its impact will be compounded by the downturn that is now engulfing the City. An economy can just about afford to be nasty to the rich during boom times; it cannot do so when everything else is going wrong. With the credit crunch intensifying, mounting layoffs at investment banks and a sharp decline in confidence, the last thing the housing, arts and luxury goods markets need right now is for their best customers to up sticks.

Yet Brown is now considering adding an attack on offshore trusts to his poll tax plans, a development which has brought a smile to the faces of relocation experts. To the expatriate community and their wealth managers, the attack announced in the Pre-Budget Report now looks as if it was merely the first salvo in a long war of attrition. The fine print of the Treasury’s consultation document makes it clear that the screws could soon be tightened further.

For good measure, the assault on the non-doms is going hand in hand with a hike in capital gains tax, a rise in corporation tax on small companies, and a crackdown on the 29,000 non-residents who commute most weeks from Monaco or the Isle of Man. All of these changes add up to a simple message to the skilled, hard-working and above all footloose international talent to which today’s Britain owes so much of its success: don’t bother coming here, we don’t value you any longer.

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