The Tories should nip this one in the bud. It does not matter what Ed Balls said a few months ago about taxation of “non-doms”, apparently ridiculing what Ed Miliband now supports. Balls was wrong and Miliband is right, and George Osborne should now agree. The chancellor can claim to be tougher than any of his predecessors on tax avoidance. He can argue that all parties have been lax on tax scams. All should now strive to cleanse them from the fiscal deck.
This is not a left-right issue, any more than it matters how much or little a tax raises. Taxation must above all be fair. Labour introduced a fee of £30,000 on British residents wishing to claim “foreign domicile” for tax purposes, increased by the Tories to £90,000. There remain 116,000 residents in this category. Lord Paul, the Labour peer and former non-dom, suggested to the BBC this morning that Osborne’s fee increase was a plot to favour very rich Tory donors at the expense of moderately rich Labour ones. That must be absurd, but it demonstrates the corruption now enveloping this murky frontier between tax dodges and party donors.
Non-dom status is a fiscal archaism. In medieval England you could buy a church burial site to gain a fast track to heaven. The trouble was that to benefit you had to die first. In modern England, you can achieve fiscal bliss while still alive. Buy the sacred plot abroad and you get the benefit right away. “Place of intended burial” is a key criterion for non-domicile tax status.
The tax relief was meant to encourage colonial enterprise by sons and daughters of empire. It now simply encourages the rich. Britain is one of the few developed countries where you can set up home but pay tax only on what you “remit” to a British bank account. Even if born in Britain to a foreign domiciled father, you can shelter your entire inheritance overseas tax free.
In most countries, including America, those who benefit from citizenship are expected to pay the same taxes as everyone else. Only in Britain is that not the case. If non-dom you need pay tax only on the money you bring into the country and spend here. Britain is a classic tax haven.
The consequent attraction of London for the very rich is much cited by non-dom apologists as “good for Britain”. This is wholly unproved. It has certainly led to price inflation for London houses, schools, hospitals and football clubs, but how much trickles down into the economy is moot. New York, with a far more severe tax regime, is not noticeably short of super-rich.
How this scam has survived so long is a mystery. Balls got in another mess this morning when asked (on the BBC) why he had not abolished non-doms when he was at the Treasury. He said, obscurely, that it was “not a priority”. It was now needed to “cut the deficit”, while also being “a matter of principle”. The truth is that Balls, like his predecessors, lacked the guts to face down the lobbyists.
Pressure on successive Treasury ministers has long come from a potent coalition of party donors, bankers, accountancy firms and City politicians – a lobby stashed with non-doms. Lord Paul, a Labour donor, rather gave the game away when he said he dropped his non-dom status only when told it stopped him being a lord. It must have been an expensive peerage.
Non-dom status is to fiscal policy what leeches once were to medicine, a lingering archaism embedded in professional custom and practice, and thus hard to change. I once used an excellent HM Revenue tax advice service, based somewhere in Soho. An official would fill in your form for free. He listed allowances and deductions beyond my imaginings, and was especially keen to know if I had foreign connections. He was adamant that I pay only what was legally required. I imagine this splendid official, like many former Revenue types, now runs a lucrative service somewhere in Geneva.
Britain’s non-dom exclusion may cost the Treasury as much as £1bn a year. But tax evasion in all its forms, including the black economy, has been estimated to cost £70bn annually. Even if an exaggeration, this is clearly a huge section of the public realm crying out for reform. Osborne himself has called evasion “morally repugnant … stealing from law-abiding people, who face higher taxes to make good the lost revenue”. Tax avoidance through overseas shelters is evasion legitimised by the state, hence the growth of such euphemisms as “aggressive avoidance”, “tax planning”, and “legitimate relocation”. There is no need to condemn those who use these methods. The need is to stamp the methods out. They are wrong.
Miliband – and hopefully Osborne – should not stop at non-doms. If Miliband means what he says, he should promise a commission to look at tax policy across the board. Indeed, the big money is not in personal tax dodges but the corporate sector, not least in global operations such as Google, Apple, Amazon and Facebook. What will Miliband (and his new Scottish allies) do about corporate taxes? Will Scotland indulge in the same deals as Ireland to attract company letterboxes? There is no doubt that company taxation in a globalised economy is tough. That is what tax experts are for. Big firms may threaten to “take our headquarters elsewhere”. They cannot take their customers and their employees.
The worst culprit is Europe. That tax shelters continue to exist within its borders is an offence against the principle of economic union. European states must bear the burden of open borders, mass migration and shared welfare, for the good of the continent. Yet sandwiched between these states are tax havens bleeding them of cash for no other reason than to avoid paying a fair share of that welfare burden.
The continued toleration of havens such as Jersey, Monaco, Luxembourg and Switzerland, and Atlantic and Caribbean islands laughably called British “protectorates”, should never be allowed. There is no justification for what amounts to sovereign theft of money from bigger states. Of course the rich can “go elsewhere”. At least they can be driven out of Europe.
Leona Helmsley famously remarked that “only the little people pay taxes”. Non-dom status is solely for big people, but so are myriad other forms of evasion and avoidance. Cut them out and income tax could be slashed, and half the NHS budget saved. Why is it taking so long?
