Problem with non-doms isn’t what you think it is

Chris Blackhurst, The Independent

There is something about Labour’s way of managing money that provokes alarm.

The opposition is putting pressure on Jeremy Hunt to reveal by the end of this month the government’s intentions towards non-doms. No prizes for guessing where Labour is coming from — it wants the favourable tax status afforded to foreigners scrapped. It argues the preferential arrangement — which allows people who live in the UK to pay no domestic tax on their overseas income — is unfair.

One person who took advantage of the scheme was the prime minister’s wife, Akshata Murty, as was exclusively revealed by The Independent. The daughter of an Indian billionaire — with shares in Infosys, the tech giant her father founded — she saved up to £20m in tax by claiming to be non-domicile. Despite being married to Sunak, she maintained her permanent residence was outside the UK.

But the bit that is concerning is Labour saying it could use the revenue raised to train 7,500 more doctors a year, 10,000 more nurses and midwives, double the number of district nurses qualifying and 5,000 more health visitors, or introduce breakfast clubs in every primary school in England. It seems so binary — extra NHS staff or breakfast clubs. It’s hard to see how you link one to the other. It would also cost an awful lot of money. And it’s flawed. Targeting non-doms assumes they will choose to remain in the UK. But by their very definition these are foreigners – they must make that case, to qualify for the privilege. Already, critically, potential non-doms are making a call on the direction the political wind is blowing and they’re not coming. The total of non-doms in the UK at the last count, in 2021, was around 68,000. But the number of new non-doms dropped from 15,400 in 2018-19 to 14,200 in 2019-20, down again to 8,500 in 2020-21. In the coming tax year, that figure for new claimants will almost certainly fall further — possibly dramatically so, as the next general election is scheduled for 2024.

While many people would agree with Labour’s assertion that the non-dom concession is “outdated and unfair”, it is also taking a decidedly old-fashioned view to believe the non-doms will stay once the benefit is removed.

We would be sending a signal that they’re no longer wanted — however it’s dressed up, that’s how it would be interpreted. And not only are they foreigners, but many of them are very wealthy ones. In today’s world that can make them globally mobile, able to live and operate pretty much anywhere. A study from the London School of Economics last year reckoned that non-doms in the UK receive at least £10.9bn in offshore income each year, which they are not required to report to HMRC or pay tax on in the UK. Taxing this would raise more than £3.2bn.

But it should not be forgotten that non-doms do pay tax in the UK; on their onshore earnings, in income tax, national insurance and capital gains. That amounts to £7bn a year. If some go, that pot similarly reduces. So HMRC would gain £3.2bn, but see the £7bn it collects at present probably diminish. At the same time, we will lose the cash the departing non-doms spend and invest here. Many non-doms are entrepreneurs and if they went, they would take their businesses — and the jobs they’ve created — with them. Our loss will be someone else’s gain. Italy and Ireland, to name just two countries, are thought to be willing to attract them. That’s not to defend the idea of non-doms. It’s merely to point out that just as the label seems archaic, so is the belief that billions will pour into the Exchequer simply by ending their special advantages.

Policy-wise, abolishing non-doms is a horse that has long since bolted if the reason for doing so is to rake in vast sums. Ideologically, of course, it’s a different matter. But we should not be under any illusion: Labour may disagree, but it’s a largely symbolic gesture rather than transformative.