Ed Miliband’s threat to end the non-domiciled tax regime if Labour comes to power has been condemned as “madness” by senior captains of industry who have besieged Eastern Eye with their concerns.
They say that such a move by the Labour leader would ultimately harm the British economy by forcing some businessmen with non-dom status to leave the country and discourage an unknown number from coming to the UK in the first place.
The businessmen who contacted EE asked for their names to be withheld because they fear possible victimisation in the future.
Some revealed they supported Labour in past years and even donated to the party’s coffers, but now feel betrayed by the possible retrospective change in rules.
Miliband has given the impression that businessmen with non-dom status pay no tax at all on their earnings but this is not the case. The non-dom taxation rules are a legacy of empire which have served Britain well for more than a century.
According to Lord Swraj Paul, non-dom status was first offered to British businessmen, who were born in India or other overseas colonies, in order to encourage them to come back “home” to the UK.
The rule was that someone born overseas could be resident in the UK so long as he paid tax on all his earnings in this country. But no tax was payable on money earned abroad. However, UK tax was payable on overseas profits that were repatriated into the UK.
However, the rules were changed in 2008 by the previous Labour government, which said anyone who wished to remain a non-dom would have to pay the exchequer an extra £30,000 a year.
This has been increased by the coalition government, first to £50,000 and subsequently to £90,000 a year.
Peers who were non-doms were told they would not been allowed to keep their seats in the House of Lords unless they became fully domiciled in the UK. Lord Paul, a Labour peer turned crossbencher, chose to give up his non-dom status and become fully domiciled in the UK.
However, Lord Raj Bagri, a Tory peer and a former chairman of the London Metal Exchange with extensive copper interests in South Asia, retained his non-dom status but surrendered his right to sit in the Lords.
The Bagris would not comment on Miliband’s plans to abolish non doms, but it would not be a surprise if this family chooses finally to leave the UK after 50 years.
Miliband said: “Why should people be able to enjoy all of the virtues of our great country and not pay tax like everyone else? Why should there be one rule for some people and another rule for everybody else?”
“It means higher taxes for working people and business people and starving money from our public services,” the Labour leader added.
“It isn’t fair, it isn’t just, it holds Britain back and we will stop it. The next Labour government will abolish the non-dom rule.”
He could have clarified that non-doms pay tax on their UK earnings just like any other British person living in this country – and on any of their overseas earnings brought into the UK. They also pay tax on their overseas businesses in the countries in which these are located.
As one businessman put it: “Miliband appears willing to lay down his country for the keys to number 10.”
Another, who also did not want to be identified, said: “Miliband may win a few more seats (in the general election on May 7). But the importance of Britain (as a country which has traditionally attracted investors) will disappear.”
Mixing his metaphors, the tycoon suggested Miliband had “bowled a double googly. It is a double-edged sword.”
Among non-doms there is widespread disenchantment with Miliband. But the Labour leader has made a promise that will prove popular with the average person in the street, even though abolishing non-doms may not appreciably boost the money collected by Her Majesty’s Revenue and Customs (HMRC).
One businessman with good contacts in the upper reaches of British society admitted: “I would also add Tony (Blair) was New Labour – these guys are old school Labour who will take the country back not forward.”
He explained the advantages offered to non-doms allowed Britain to attract entrepreneurs from all over the world.
“Despite the collapse of the British colonial rule, Britain has been able to maintain some relevance on the global stage largely because of the non-doms coming to the UK,” he said.
“I am rather disappointed about the Labour announcement on non-doms. I think it is an ill-informed stand.”
Apart from the tax paid by non-doms on their UK earnings, they contribute in other ways – “through VAT, property purchases, hiring people. Cutting off the non-doms is crazy. It will not bring in too much more money into HMRC.”
Shadow chancellor Ed Balls agreed with this argument back in January when he said in an interview that abolishing non-dom status “probably ends up costing Britain money because there will be some people who will then leave the country”.
Asked by BBC Radio Leeds at the time if he would scrap the status, he said he was looking at tightening the system to “make sure the non-dom rules work in a fair way”.
However, dismissing the prospect of an exodus of wealthy high-earners, Miliband took a different line from his chancellor: “We’ve heard all of these arguments before and it’s quite simple really – it’s what people with special privileges say when they want to carry on justifying those special privileges.
“My challenge to the prime minister and the chancellor is simple: stop defending the indefensible and abolish the non-dom rule. It is the right thing for the country.”
The apparent contradiction in the statements made by Miliband and Balls was highlighted by David Cameron, who said Labour policy on non-doms appeared “frankly pretty chaotic – on the one hand saying they want to get rid of non-dom status and on the other saying that if they did so it would cost the country money”.
“This goes to a bigger issue, which is when you see such confusion over a policy like this, are these people really capable or competent of running an economy?” the prime minister wondered.
The Lib Dem leader Nick Clegg took a middle stance: “In pursuing a headline, Labour forget that we must remain an open economy, but of course an economy which is not open to abuse.
“As Labour themselves have been forced to admit, there is a role for allowing people to come here who want to play by the rules who aren’t necessarily, by the way, massively rich to nonetheless have a particular tax status during the time they are in Britain.”
In an explanatory note to explain a very complicated issue, the Financial Times told its readers: “Under rules introduced in 2008, non-doms who have lived in the UK for seven or more years had to pay £30,000 a year to claim the tax perks.
“The Treasury has raised the annual charge for people living in Britain for at least 12 years from £30,000 to £50,000 since April 2012 and to £60,000 from this April. It is also increasing the annual charge to £90,000 for those who have been resident for 17 years.”
Explaining the perks, the paper said: “The main perk is being able to keep offshore income and capital gains out of the British tax net. The money is taxed only when it is brought into the UK.
“The overwhelming majority of people claiming non-dom status are workers who have lived in Britain for less than seven years. They do not have to pay an annual charge to keep offshore income or gains out of the British tax net but lose personal allowances worth several thousand pounds.
“So, for example, a banker who moved to work in the City for a few years would be unlikely to be taxed in Britain if he sold property abroad.”
It quoted Patrick Stevens, head of tax policy at the Chartered Institute of Taxation, who pointed out that Britain was not alone in offering incentives of this sort: “Lots of countries do it. Belgium, the Netherlands and some of the Scandinavian countries are examples. They all say if you are only coming here for a limited time all we want to do is tax you on what you earn.”
The Financial Times said: “Not all the changes have made non-dom status less attractive. In 2012, George Osborne, the chancellor, said income brought into the UK for commercial investment would no longer be taxed.”
One Indian non-dom was cynical: “Miliband wants the top seat. If he gets the top seat, he may say: ‘Let me take a look at this’.”