Any Conservative who doubts that Labour’s promise to abolish non-dom status could seriously damage the government needs to look at the fate of Rishi Sunak. So recently the heir apparent to the Tory leadership, Sunak has this week plunged to bottom in a poll of the most popular cabinet members. It comes, of course, just a couple of weeks after the revelation that Sunak’s wife was living in Britain as a non-dom – a status which according to one estimate could have saved her up to £20 million in tax over the years. And this was a poll of Conservative party members, so goodness knows how much the revelation has done to damage the Chancellor in the eyes of the floating voters whose support the Conservatives will need to stay in government.
No, it is not the ‘politics of envy’ to want non-dom status to be abolished and be replaced with a shorter-term arrangements for the taxation of foreign nationals living in Britain – a term which some Tory MP will no doubt soon foolishly utter. It is simple fairness. Nor, as Rishi’s fall from grace in the eyes of Conservative party members attests, is opposition to non-dom status limited to people on the left. On the contrary, it excites the Conservatives’ core vote. People get upset about non-doms for the same reason that they get upset when they read stories about asylum-seekers being put up in posh hotels, or foreign motorists being let off speeding tickets or parking fines – they don’t see why foreigners should get a better deal than they do. Moreover, with Russian oligarchs rather unpopular at the moment, it is unsurprising that people should start to focus on the tax regime which has brought them here.
Labour hasn’t exactly been a great source of ideas in recent years, but this is one that the government would do well to emulate
Not, of course, that all non-doms are foreign nationals. Some are able to claim their status by virtue of their father’s country of residence. If your father was a tax exile, you can inherit non-dom status even if you have lived in the heart of Belgravia for decades. It is entirely reasonable to think this outrageous – and extremely difficult to argue a case in favour.
The regular justification for non-dom status is that it helps to attract wealthy entrepreneurs who might then set up businesses in Britain and thereby create jobs and generate tax revenues here. But if that is the aim, a tax break for individuals is a rather poorly-targeted way of trying to achieve that. I haven’t been able to find any statistics on how many of Britain’s 75,700 non-doms have created businesses in Britain, but I suspect a rather large proportion of them live here while keeping most of their business interests abroad. After all, they have a rather powerful incentive to do this – if a non-dom were, say, to relocate their steel works from India to Britain and list it on the London stock exchange they would then be forced to pay UK tax on the business. Keep it abroad, on the other hand, and they do not have to.
If we want to attract jobs to Britain we should do away with non-dom status and instead cut business taxes. Had the government kept corporation tax at 19 per cent rather than announce it was jacking it up to 25 per cent, it would attract far more business. As for manufacturing industry a far more powerful incentive would be to cut back the green levies which have made energy prices in Britain unaffordable.
There is a need for some kind of special arrangement for foreign nationals resident in Britain for short periods – it would not be fair if they ended up paying double tax in Britain and their home countries. This is why we have double taxation treaties. Shadow chancellor Rachel Reeves has not yet announced the details of Labour’s policy, but it looks as if it will provide special arrangements lasting around five years. That sounds fair. Labour hasn’t exactly been a great source of ideas in recent years, but this is one that the government would do well to emulate.
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