The Guardian carried an article yesterday in which suggested that HM Treasury projections suggested that the proposed abolition of the so-called non-domicile rule by Labour, which would deliver a policy already announced by the Tories, might raise no revenue for the Treasury.
This announcement did, in itself, reveal three deeply telling things about the Treasury and its lack of understanding of economics and the world beyond its own Westminster bubble.
Firstly, the suggestion implicit in the Treasury's observation is that taxation exists solely to raise revenue. It's very obvious that it does not. Taxation does not fund government spending, although the Treasury has not as yet understood this rather basic economic fact of life. Spending is always and has been for a very long time, funded by the creation of money by the Bank of England, which newly created money is then taken out of circulation via taxation. That is a very different process.
Secondly, given that taxation does not exist solely for the purpose of raising revenue, it does take on other functions within the delivery of government policy. In particular, it can be an instrument of social policy, and this is precisely why the abolition of the domicile rule is so important.
That rule lets those who are tax resident in the UK but who can claim to have a natural place of origin in another country avoid paying tax in the UK for extended periods on the income gains arising outside this country so long as they are not remitted here. This contrasts with the situation of a person who is domiciled in the UK, who will always be taxable on all their worldwide income and gains, irrespective of whether they are enjoyed in the UK or not.
This tax policy is, therefore, an exercise in blatant discrimination on the basis of ethnic origin that I consider would be discrimination under the terms of the Race Relations Act, except for the fact that the Act in question cannot apply to government-created policy. But for this reason alone, this change is essential. The domicile rule must be abolished, partly to eliminate this abuse and partly to indicate that everybody in this country will be taxed on the same basis, whoever they are and wherever they come from.
Third, the suggestion made is naive because it assumes that a very large number of people who might be subject to the rule will leave the UK if it is to be withdrawn, and there is absolutely no evidence that this is the case. The rule applies to people who are resident in the UK. That means that they don't just live here. It is also highly likely that they also work here. Some will be in the City, others in tech, and some will be sportspeople. It is naive to think that they ever came here just for tax reasons. They came here because well-paid work was available, and they took it. I am not, of course, saying they could not move again. But let's be clear: if they go, I have little doubt that there will be people to fill their shoes, willing to step up and take the pay - and quite probably perform better than expected when given the chance to do so. They will also pay all their tax.
So, is it really likely that ending the domicile rule is a real issue? I seriously doubt it. If our economy is built on such fragile foundations that pensioners must be punished whilst wealthy tax avoiders can be incentivised, there is something profoundly wrong with it, and it needs reform in any case.
But what I do know is that the non-doms have a very big lobby shouting for them, which is all the lawyers and accountants who charge them a fortune to manage their tax affairs. I think it is these so-called professional advisers who are the problem, not the non-dome people themselves, who will just see it as a bonus they don't really understand in most cases, because very few wealthy people really understand their tax bills, based on my own professional experience with them.
That professional lobby has also got an article in the FT this morning. It must be working overtime. They must also be worried. The source of their well-being is at risk, and that is what all this noise is about. The non-doms won't leave, but some well-off lawyers and accountants living off the back of them will have to find something else to do so. Oh dear; they might have to become useful members of society.
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A Disgusting state of affairs.
If nothing changes will I be able to get Non Dom status if Wales becomes Independent as my mother was born in Sketty?
No…it doesn’t work for Ireland so it won’t work for Wales
Spot on – it’s not about the money, it’s about “fairness” and equal treatment.
As I see it, there are two types of non-doms; (1) those that live/work in London because that is where the jobs are (in finance etc.) and (2) those that don’t work here but simply choose to live in London because they like it and have enough wealth to live wherever they wish.
Frankly, if type (2) leave I will shed no tears. They add little to life here except boost property prices, fill top-end restaurants and pay accountants/lawyers fees to manage their affairs. Furthermore, for some, the source of their wealth is questionable and their influence on public life malign.
Type (1) is more nuanced. I do see some of these folk leaving… but it is not (only) about non-dom status. Technology, Brexit etc. mean jobs many can be done elsewhere but this is more about living in a zero income tax regime (Dubai) rather than a “worldwide taxation” issue.
Finally, for many non-doms it is not about income tax… it is about inheritance tax. I don’t know enough about this to comment but it rarely features in discussion.
Few manage IHT when they are very economically active
If avoiding paying tax and making a proper contribution to the country they predominantly live in is such an over riding priority for them I’d be delighted if they left. This country does not need more of these self entitled greedy people polluting the social discourse.
“there is absolutely no evidence that this is the case.”
In France, they raised taxes on the wealthy and many left. That is a documented fact. France abandoned the tax increases.
In Spain, they raised taxes on the wealthy and many left. That is a documented fact. Spain abandoned the tax increases.
In Norway, they recently raised taxes on the wealthy and many have left or are leaving. That is a documented fact.
You can say ‘good riddance’ to such people if you like, you can say we should do it anyway on principle but to continue to claim that “there is absolutely no evidence” that people leave flies in the face of reality.
A 2020 article in the Harvard Journal of Economic Perspectives cited no less than 12 studies between 2007 and 2019 from around the world looking at different groups of people all of which came to the same conclusion. Personal taxes are an influence on people leaving or coming to a country. Close your mind and eyes to it if you like.
Tiny mumbers left
No one counted those returning or still coming in
Objective studies on this issue show tax migration is really not an issue
This is a very good article on international migration
https://danieljmitchell.wordpress.com/2024/09/15/tax-motivated-international-migration/
I suggest you read it Jenny.
I have known Dan Mitchell for 20 years and have debated him
He’s a lightweight joke from a Tufton St equivalent think tank
I’m no tax expert (!), but I don’t think you can make conclusions based on these data, which are for quite different taxes.
In France, there is no such thing as non-dom status – all residents are subject to tax on world-wide income. The tax which was withdrawn was a wealth tax, not an income tax and at least some – of not most – of those who left were French.
It seems to me, and I’d welcome confirmation or correction, that people can’t leave the UK and remove sterling from the country?
UK residents have their money in sterling. If they move to another country they have to change currency. Which means someone else, with the foreign currency, has to swap it for sterling. The number of pounds remains unchanged; none are destroyed. And pounds are only spent in the UK. So spending power in the UK is not reduced.
If they have UK based assets someone has to buy them (so that they can change them for foreign currency) if they want to shift assets abroad. The original assets remain within the UK.
Is the perception that people can “take their money out of Britain” just an example of a failure to take account of both sides of transactions. Am I missing something?
Interesting points
And I should add, their money is alrady mobile, whether they leave or not
The only reaosn to be a non-dom is to have money out of the UK
Thank you, Richard.
The lobby now includes Andy Haldane, https://www.theguardian.com/politics/2024/sep/26/former-bank-economist-advises-labour-to-reconsider-non-dom-tax-crackdown. He wasn’t like that when I worked with him from 2008 – 14.
I wonder if that was a job application, like an unsettled football player putting out a come and get me message…
I saw
Very weird
And I note the Grauniad is full on neoliberal in tax this morning, also arguing IHT exemptions on the AIM market should survive
Thank you, Richard.
Full on spiv mode (telling lies) just like the House of Lords (Inquiry into the Sustainability of Public Debt Committee) in my book:-
https://www.theguardian.com/uk-news/2024/sep/27/how-rachel-reeves-could-release-billions-more-for-investment-in-the-budget
Have you noticed that the G’s current “finance” campaign is labelled “Tax and spend”?
Almost subliminal messaging.
I had not…
Will it not be to the detriment of the Labour or Tory beggars to abolish the non dom status? Won’t it affect their freebees and backhanders if the non doms flee?
Labour are after those who can’t afford to lose £200 or £300, or the minority benefit cheats, not their wealthy tax-avoiding donors.
I’ll be amazed if non dom status is abolished but it will mean that Labour is capable of doing what’s right, it’s just that they choose not to.
I could be wrong, but didn’t the Tories (the real ones, not the current government) already do away with non dom status?
They announced it to undermine Labour
” because it assumes that a very large number of people who might be subject to the rule will leave the UK if it is to be withdrawn, and there is absolutely no evidence that this is the case.”
Surely it’s not about the number of people who leave, but the income/wealth of those that do. Remember, non-doms aren’t just billionaires. There will be plenty of nurses working in the NHS who are non-doms but any change in rules won’t affect them because they have little or no non-UK income. It’s the small number of very wealthy folk who can up sticks we should be worried about.
Why?
We don’t need to because their wealth is is not here, so if they leave some one domiciled takes their place but there is no loss.
I do wonder to which Nirvana all these wealthy non-doms will be fleeing to. Where did those French, Spanish, Norwegians go to ?
Dubai, probably
Good luck with the heat, I say
They won’t stay
Other than the odd footballer and his wag, does anyone really stay in Dubai for any length of time?
No idea
I have never been and have no desire to do so
The next statement from the chancellor/treasury will, no doubt, be that it’s their job to balance the budget each year and that taxation income – spending must equal £0
I just wondered if the government taxed savings at100 percent it would be possible to balance government spending and taxes
That makes no sense
Hi Richard I’ve watched your video about the bank of England creating money requested by the government but what happens to the money collected by HMRC ?
It cancels a debt and so ceases to exist.
That is the role of tax. It funds nothing.