In his Budget speech today, the Chancellor Alistair Darling confirmed his controversial plan to tax non-domiciles £30,000 a year for the privilege once they’ve been in the UK for seven years. But will they all stick around to pay it?
Darling acknowledged the ‘important and central contribution to the UK’s growth and prosperity’ made by non-doms, but said it was ‘right and fair’ that they should be taxed differently once they’ve been here for a set period of time. Currently of course non-doms pay income tax on all the money they make in the UK, but no tax at all on the money they make elsewhere.
The Chancellor’s original plan went down like a lead balloon in the City, with various pundits, businesspeople and trade associations lining up to criticise the move as short-sighted and ill-judged. The argument appears to be that the hedge fund managers, lawyers, and shipping barons who make up a large proportion of the 100,000-odd non-doms currently working in the UK are all perfectly mobile – so if the tax rules were changed, they’d just up sticks to Switzerland and move in next door to Louis Hamilton.
Darling has made some concessions. He promised today that the Government wouldn’t pry into any of their offshore investments, and also that there’d be no increase to the non-dom tax in this Parliament or the next (much to the amusement of the Tories, who like to think that they’ll get to choose for themselves after the next election). But that doesn’t change the basic fact that working as a non-dom in the UK just got a lot less attractive.
There are two schools of thought here. You might think this is a perfectly reasonable way to tax the earnings of a super-rich elite – after all, Lakshmi Mittal isn’t going to think twice about shelling out an extra 30 grand a year. Or you might agree with the City that the government is mad to undermine one of the major reasons why top talent has flocked to these shores – and since financial services is about the only world-leading industry we’ve got these days, it’s not a risk worth taking.
Either way, it’s going to have some serious implications for the Government’s already fraught relationship with the Square Mile. And it’s not going to help the queues at our airports if Heathrow’s full of bankers trying to get on the next plane home...