Are The Tories Right To Tax Non-Doms?
Targeting foreign tax-dodgers is a vote-winning policy, but are they really as wealthy as they're cracked up to be?
We used to know exactly where the Tories stood on jet-setting plutocrats. They were useful for a bob or three in donations and a few of them, by sheer chance, ended up with honours.
Now shadow chancellor George Osborne has decided these wealthy individuals – who live in Britain but claim non-domicile status and thus pay precious little tax – are the perfect target to fund costs elsewhere. He proposes a steep £25,000 annual charge for the privilege of staying in the non-dom club.
It's a mini Nixon-goes-to-China moment for Conservatives: in the space of a couple of years, non-doms have gone from de facto owners of the old Tory Party to tax victims of the new Cameron one.
Delegates in Blackpool must have been wondering what hit them. Labour has never dared propose such a tax for fear of driving these supposed wealth creators from our shores. The excuse often proffered – that it is hard to design an effective way of taxing these people – is just a lot of stuff and nonsense.
This is a politically astute move, which could raise £3.5bn with minimum political impact, and which taps into most people's sense of social justice. It's an elegant scheme and certainly far more practical than tracking down trusts in the Cayman Islands.
Moreover, £25,000 won't scare off the rich international residents who benefit the UK economy in other ways. Labour reckons the Tories' estimate of non-dom numbers is too high, but we know so little about Britain's non-dom population that it is hard to judge.
However, that's precisely the flaw in Osborne's plan. This policy may go down a storm in Britain's saloon bars, but there's a very good reason why Gordon Brown kept returning it to the "too difficult" basket.
Anyone making less than £62,500 from non-UK earnings – and there must be many – would be better off sacrificing their non-dom status, and they won't thank the Tories for the extra red tape. This new tax has been dubbed by many as neither fair nor likely to raise much cash – because for every oligarch and hedge fund baron, there is an IT consultant or doctor.
A much better route may be to charge non-doms according to their means; the simplest way is to tax them on the value of their UK residences.
Despite its weaknesses, the barebones of the Tory plan has merit, and attempts to pooh-pooh it won't work. If labour is smart, it will steal the Tories' clothes on non-doms, by converting it from a poll tax into one based on ability to pay.
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