The Chancellor and the riddle of domicile

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I happened to have received the Chancellor's briefing for Labour MPs on today's Lib Dem debate on tax and the rich. On domicile and residence it says:

Review of the residence and domicile rules

The Review of the residence and domicile rules that govern personal tax was launched at Budget 2002.

The Government's review of residence and domicile rules is guided by clear principles, as set out in Budget 2003. Any change should be judged against three criteria:

" Would it increase the fairness of the tax system?
" Would it help the competitiveness of the UK economy and our future prosperity?
" Would it simplify the tax system?

The current rules play a role in enabling business to attract the top international talent and in particular underpins the City as a global financial centre. We need to strike the right balance between this and other objectives.

The Review is still ongoing. We need to be sure that any changes we propose do not have unintended consequences elsewhere in the tax system or on the economy in general. We have promised formal consultation on the shape of any reforms that might emerge from the review.

The three criteria are easy to answer:

1) Yes

2) Yes

3) Yes

(1) and (3) are obvious and should be enough to carry the vote. Clearly the existing rule is unfair. Two people with identical situations bar their place of birth should not pay different tax. One good reason for this is that it is illegal to discriminate in this way, a point the Treasury has still not recognised although it is obviously true. I have shown that to be true.

(3) is easy to answer as 'yes'. The number of rules are reduced. The certainty of treatment is increased. The absurd remittance rules go. New residence rules will be needed, but they too might remove uncertainty that now exists in this system.

So, that only leaves (2). On that I make two simple comments and then ask a simple question. It's a fact that competition works best for the creation of wealth when there is a level playing field: when all participants in a contest have equal resources at the outset so that the one able to use their resources best wins rather than the one with the unfair advantage of having more resources wins. In the UK the domicile rules give more resources to a minority in our society: those not born here. There is no level playing field. Most people living here are as a result at a disadvantage and therefore have a disincentive to compete, and many will not as a result. How then, can it be claimed that a rule that guarantees that the vast majority of those who live and work in the UK cannot compete here on a fair and level playing field increases either competition or prosperity when this must produce unfair competition because the dice is stacked against most players? The only way that this could increase prosperity is if those who are not domiciled here are inordinately clever compared to those domiciled in this country. Logically that is the only possible resolution to this riddle.

If you can prove that this is so Alistair, I'll change my mind. But given the obstacles in your path you're going to have to work darned hard to do so. Because I don't believe that's the case. And I don't think you do either. In which case get rid of the domicile rules.