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Thursday 4 December 2008

Just leave them alone, Darling

The Spectator on Alistair Darling's climbdown over non-dom tax proposals

On Tuesday he bowed to a well-orchestrated campaign from the City and wriggled out of proposals to force non-doms into disclosure of income outside the UK, to slap retrospective taxes on gains in offshore trusts, and to tax them on artworks brought into the country. But so far he is sticking to his core proposal of an annual £30,000 tax on non-doms who have lived in this country for at least seven of the last ten years. In doing so, he is doubly mistaken: first, because there is no certainty the levy will produce positive income for the Treasury; and second, because it threatens serious damage, with much wider fiscal implications, to London’s position as a global financial centre.

But before we analyse those two issues let us pause, in the name of even-handedness, to heap a portion of reproach on shadow chancellor George Osborne, whose brilliant (indeed, Threadneedle-Spectator-Politician-of-the-Year-winning) tactical manoeuvres have been responsible for so much of Darling’s discomfiture. Osborne’s declaration to his party conference last October that a future Conservative government would raise the inheritance tax threshold to £1 million, and the stamp duty threshold on house sales to £250,000, was hailed as a turning point in the relative fortunes of the major parties: the moment the Tories tore the political agenda out of Gordon Brown’s hands and regained the electoral initiative for the first time in 15 years. But at the same time, to suggest that he would have the means to pay for these vote-winners without cutting vital public services, Osborne threw in a £25,000 annual tax on non-doms; and since the Treasury would not tell him how many non-doms were registered, he was able to pluck a figure and claim that his levy would yield £3.5 billion a year.

Tax experts as well as government spokesmen immediately told him it would yield no such sum, but his headline-grabbing objective had been achieved — and he had put the non-dom community into play, in the popular imagination, as a sinister bunch of foreign fat-cats and tax-cheats. Forced to respond, Darling came up with the higher figure of a £30,000 levy in his pre-Budget report little more than a week later. In due course — having been advised, no doubt, that no tax aimed specifically at the internationally mobile and financially sophisticated can ever be simple — he added a complex set of conditions and loophole-closing devices, from most of which he resiled this week.

Osborne, meanwhile, continues to press for short-term political gain by rehearsing the supposed advantages of his much simpler £25,000 flat-rate proposal — which can only be kept simple because it is no more than a bold brushstroke of opposition thinking, rather than a government policy that has to be watertight in implementation.

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