Questions over Labour’s non-dom ban

Ed Miliband has announced plans to scrap the non-dom tax status enjoyed by some of the UK’s richest people - just months after Ed Balls said scrapping the move would raise cost Britain money.

Shadow Chancellor Ed Balls at Hilton Doubletree
Shadow Chancellor Ed Balls at Hilton Doubletree

A Labour government will end the controversial non-dom status which allows some of the country’s wealthiest individuals to avoid paying UK taxes on their worldwide incomes, Ed Miliband will announce.

The Labour leader will say the 200-year-old rule, which applies to around 116,000 people, makes Britain an “offshore tax haven for a few” and can “no longer be justified”.

But within hours of the announcement a recording of a January interview with the shadow chancellor emerged in which Mr Balls said: “If you abolish the whole status it will end up costing Britain money because some people will leave the country.”

The Tories immediately warned that it would lead to a “flight of talent and a flight of cash” from the UK.

Under Labour’s reforms, anyone who comes to the UK and makes it their permanent home will pay tax in the same way from April 2016.

In a speech in Warwickshire, Mr Miliband will say there is a “distorted” view of wealth creation that has led to an idea that the richest “should be allowed to operate under different rules”.

“The problem is, it isn’t true. It is a recipe that doesn’t work for most working people, doesn’t work for business and doesn’t work for Britain,” he will add.

The tax status applies to people who are “non-domiciled” in the UK because they have their permanent home elsewhere.

They can opt to only pay tax on income that is brought into the country and pay no UK tax on their earnings or capital gains outside the country.

Leaked files that emerged earlier this year revealed that many non-doms had been hiding their money in HSBC’s Swiss private bank and were able to avoid taxes on their wealth anywhere in the world.

Mr Miliband is expected to point to the fact that the “tax gap” - the difference between the amount owed and the amount collected - has risen to £34 billion under the coalition.

“Tax havens are continuing; the scandal at HSBC has been brought to the heart of government; the hedge funds are given the green light to avoid paying their fair share; HMRC seems to operate double-standards. It’s one law for a few, other law for everybody else,” he said.

“This means higher taxes for working people and businesses, as well as starving money from our public services. In a world of tough, difficult choices, we just can’t allow this to continue.”

The Chancellor insisted Labour’s policy would not scrap non-dom status and only amounts to “tinkering around the edges”, making changes to rules on how long someone can be a non-dom.

George Osborne said: “The small print of Labour’s policy makes clear that they are not actually abolishing non-dom status.

“This confusion is another reminder of why they can’t be trusted with our economy.

“Either they are going to abolish non-dom status altogether which would cost our country hundreds of millions of pounds in lost tax revenues and lost investment - the reason they did nothing on this during 13 years in office.

“Or they are just tinkering around the edges and making small adjustments to the rules on how long people can be non-dom.

“We’ve taken the right approach to this issue by raising more money from non-doms than any previous government. And we will raise £5 billion a year in the next parliament by continuing to crack down on tax avoidance and evasion, including abuses of the non-dom rules.”