"You can easily spend 75 per cent, or 85 per cent, of your time in the UK... but be a non-dom. No wonder people are pissed off.” This wasn’t Ed Miliband yesterday, during his speech announcing his intention to abolish the tax status that applies to over 100,000 UK residents, but a Conservative MP, Richard Bacon, at a hearing of the Public Accounts Committee back in March.
For many people, the non-dom system shows that there is one set of rules for the rich, and another for everybody else. At the centre of the row is the remittance system, which enables non-domiciled UK residents to pay an annual fee of between £30,000 and £90,000 in order to protect their overseas earnings.
This explains why Labour has chosen non-doms as their target for this second week of the election campaign. Miliband described the tax treatment as a “symbol of the scandal of tax avoidance”, and promised to scrap the system for people coming to the UK from 2016. But is it a good idea to announce major changes to the tax system, with no consultation, in order to tackle symbols?
The facts we have challenge Miliband’s suggestion that the rule “holds Britain back”. There are about 116,000 registered non-doms, of whom around 46,000 have claimed remittance from paying tax on their overseas earnings. But this is mostly because they have been in the country for less than seven years. Those non-doms who claimed remittance contributed about £130,000 each in tax to the public purse in the last year for which we have figures.
In total, in that year, non-doms collectively added over £8bn in income tax and national insurance contributions. It may make political sense to crack down on these successful taxpayers, but the economic sense is much less obvious. Labour claims their reforms would bring in hundreds of millions in extra tax, but have refused to show their workings, and no independent source has produced a solid estimate. Improving the public finances does not seem to be the primary motivation.
The internationally-mobile group of top executives and super rich who make up the 5,000 non-doms with significant overseas earnings may have few sympathisers, but let’s consider the practical impact of Labour’s proposed rule changes. No-one is suggesting there will be a mass exodus from the City overnight, but it will have a significant effect on future decisions by companies and executives.
If a major firm wants to bring over a senior executive from abroad, overseas earnings which have nothing to do with the UK will suddenly become taxable here. This will make it harder to attract top talent – and not just in finance, but also in industries like pharmaceuticals, technology and manufacturing, where Switzerland is a genuine alternative.
The attraction of announcing a policy like this is that it is easy to label anyone who objects a scare-monger. Of course London will continue to be one of the world’s leading cities for business. But before Labour rushes to implement these changes, they should ask themselves why they are seeking to make the UK less competitive, not more.