‘Totemic’ tax move

As the general election nears, campaign promises are a dime a dozen. Elections are usually a flurry of predictably vague pledges, with politicians revealing just enough of one policy or another but conveniently omitting the fine print.

 
This time round, however, is decidedly different. Labour has hit out with bold, clear policies, and their pledge making headlines today (April 8) may just be their boldest.

 
They’ve vowed to scrap the ‘non-dom’ special tax status, which allows non-domiciled British residents to pay no tax on any income they’re earning abroad.

 
A rule that’s been on the books since the 18th century, it’s a relic of colonial times that today empowers Britain’s mega-rich to skirt their duty to contribute to the society that’s helped them generate and support their wealth.

 
While “non-domiciled” may suggest someone who doesn’t live in the UK, for the purposes of the tax giveaway, you can be born in Britain, raised in Britain and lived in Britain your entire life and still be non-domiciled. The status is contingent on various loose criteria, including having a father born abroad, a bank account abroad or even something as simple as a foreign news subscription.

 
The chief executive of HSBC, Stuart Gulliver, is one such example of a typical non-dom – he was born and raised in the UK, currently lives in the country and sends his children to UK schools, but is able to claim non-dom status because he once worked in Hong Kong.

 
There are about 116,000 people who claim non-dom status, with 5,000 paying an additional charge to continue claiming the status even after having lived in the UK for more than seven years.

 
Tax campaigners and experts have described the new Labour policy as a totemic one. Richard Murphy of Tax Research UK noted on his blog yesterday (April 7):
“The significance of this [policy] cannot be overstated… it means that a nail has been put in the coffin of the UK tax haven. That is because non-doms could be resident here and pay tax on only a part of their income, which was an advantage simply not available in any other equivalent country around the world. This will now end. The UK will no longer be a tax haven for this reason.”

 
In fact, the policy was so impressive to one renowned entrepreneur, Duncan Bannatyne, that he has decided to vote Labour precisely because of it. Calling it a courageous move on Labour’s part, Bannatyne only last week had signed a letter supporting the Conservatives.

 
“This gets my vote I never thought any party would have courage to do this,” he tweeted yesterday evening.
Tax expert Jolyon Maugham analysed the policy, putting forward an estimate of how much the Treasury would benefit from the proposed Labour change. He figures £1bn – and that’s on the most conservative end of the scale, with the upper end of his estimate being £4bn.

 
Critics of scrapping the special tax exemption say that non-doms will flee the country after being burdened by a new tax bill, taking with them their millions, meaning the country would actually lose money.

 
But both Maugham and Murphy assert that these claims are wildly overstated.

 
“Some non-doms will no doubt leave,” Murphy noted. “But when I say ‘some’ I mean a handful. First that is because there is nowhere else for them to go that is equivalent: London is the place to be and be seen and this rule change will not alter that. Second, despite the threats on previous residence rule changes and on higher tax rates almost no-one ever moves for tax purposes. Quality of life is more important than that, especially if you are already very wealthy. And third, the UK still has favourable taxes compared to most places even if they have to be paid in future. So only a very few will go, and we will not miss them.”

 
Unite assistant general secretary Steve Turner hailed the new Labour policy, saying that it signals the beginning of the end of business as usual for the tax-dodging ultra-rich.

 
“If you drive on roads, send your children to schools and use the health service when you fall ill, you pay your fair share of taxes – this is one of the founding principles of all functioning democratic societies,” he said.

 
“But in Cameron’s Britain, the wealthy – those who have benefitted the most from our country’s resources – are expected to contribute the least. The non-dom tax status is a prime example of this idea.

 
“Labour’s pledge to scrap the status will mean not only potentially billions more in the public purse, but it will also be a step toward restoring what’s missing in our tax system and in our society in general under the Tory-led coalition – fairness.

 
“While the Tories destroy our public institutions, committing to billions more in unnecessary austerity cuts to fund tax cuts for the wealthy, without detailing exactly what they’ll cut, Labour pledges specific policies with measurable aims.
“The contrast between the parties couldn’t be greater.”