It may prove to be just the first of many screeching U-turns. Whilst hobnobbing among the plutocrats in Davos this week, the Chancellor Rachel Reeves has admitted that she may have to tweak her clamp-down on non doms, to make it less punitive for anyone who isn’t British, and happens to have a bit of money, to live in the UK. Sure, it is good that Reeves is learning from her mistakes. The only trouble is it is going to prove a very expensive education for the rest of us.
It is only a couple of months since Reeves’s Budget introduced tough new rules for non doms, but it already seems the plans might need to be changed. ‘We have been listening to the concerns that have been raised by the non dom community,’ Reeves told Emma Tucker, the editor of the Wall Street Journal, in Davos. Apparently there will be some changes that allow non doms to bring money into the UK without instantly getting a big bill from HMRC, and some allowance for double-taxation treaties to make sure they are not taxed twice, especially on inheritances. There probably won’t be many champagne corks popping in the bars of Mayfair, but at least it is something.
It is not hard to work out why Reeves has changed her mind. There has been a flood of wealth leaving the UK since her Budget, with the UK losing an estimated 10,800 millionaires last year, a 157 per cent increase on a year earlier. It turns out that if you tax the globally mega-rich more highly, they leave.
Well, gosh, who could have imagined. Actually, lots of people as it happens. Reeves was warned plenty of times that her ‘clampdown’ would just drive people out. In reality, Reeves is getting a lesson in economics. If you tax the mobile rich, they go elsewhere. Likewise, if you increase the taxes on employment, as she did in her Budget, jobs are lost. If you tax schools, some of them close down. Or if you go around talking about how terrible the economy looks, businesses stop investing. Piece by piece, she is starting to figure out that she has made some mistakes, and is changing course.
It is good that she is learning. The only catch is that the damage has already been done. Once the non doms have been driven out of the country, it is very hard to get them to come back again. Once schools have closed, they can’t be reopened, and once companies have decided Britain is not the place to invest, they are not likely to reconsider. In reality, and given that she is a slow learner, Reeves’s education in the basics of economics is proving very costly for the British economy – and by the time she figures it out we will all be a lot poorer.
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