Ministers have been told to “come clean” on the economic argument for the decision not to scrap non-dom status in the UK, after the chancellor suggested he did not know how much money axeing the controversial tax status would raise.
Jeremy Hunt insisted the economy would not be helped by abolishing the controversial tax status, saying on Friday that he would rather the super-rich “stayed … and spent their money here”. And he said he had been told by Treasury officials that they were “very unsure” about how much money the move would actually make.
Labour has now called on ministers to publish figures on how many non-doms there are in the UK, and the amount the Treasury currently loses because of the loophole.
The highly respected Institute for Fiscal Studies (IFS) think tank told The Independent that its “best estimate” was that abolishing the measure would be worth around £3bn a year. The figure is roughly the same amount as Mr Hunt announced will be added to next year’s NHS budget.
The Independent revealed earlier this year that Rishi Sunak’s wife, Akshata Murty, held non-domicile tax status while her husband was chancellor. Mr Sunak called the reports about his wife “unpleasant smears” at the time, though she ultimately gave up the advantage.
The issue was seen as so toxic that insiders initially believed it would scupper Mr Sunak’s hopes of becoming prime minister.
Non-dom status, which is lawful, can save an individual from paying UK tax on dividends from foreign investments, rental payments on property overseas, or bank interest.
Asking the government to produce figures on non-doms, shadow chief secretary to the Treasury Pat McFadden said: “As the Tories raise taxes on working people, it simply isn’t right that those at the top can benefit from outdated non-dom tax perks. If you make Britain your home, you should pay your taxes here.”
He said Labour would ensure that “people who make the UK their home will contribute to this country by paying tax on their global income”.
Labour also cited research produced by the London School of Economics that aligned with the figure suggested by the IFS, putting the amount the Treasury could raise by abolishing non-dom status close to £3.2bn a year.
Earlier this year, the IFS warned that there was “very little evidence on the effectiveness of the non-dom regime at attracting and retaining valuable individuals”. But Mr Hunt argued that scrapping the tax loophole as Labour has suggested would “damage the long-term attractiveness of the UK”.
The chancellor faced questions over his decision to keep the status at the same time as planning tax rises and public service cuts, which experts warned would hurt those on middle incomes especially. Mr Hunt said Treasury officials had not given him solid numbers on how much money abolishing or paring back non-dom status would raise.
“They said to me that they were very unsure about the figures that were being bandied around, as far as the savings were concerned,” he said. “Like me, they wanted to be very sure they weren’t doing things that damaged the UK’s attractiveness. These are foreigners who could live easily in Ireland, France, Portugal, Spain – they all have these schemes. All things being equal, I would rather they stayed here and spent their money here.”
Pushed on whether the Treasury had given him a figure on how much abolishing the status would bring in, the chancellor said: “No, because we don’t agree with the figures that Labour have given. The Treasury did not tell me it was going to help the economy to do this; that’s why I chose not to do it.
“I’m not going to do anything that’s going to damage the long-term attractiveness of the UK, even though it gives easy shots to opposition parties. I think it would be the wrong thing to do in terms of creating jobs in the UK.”
Labour has pledged to abolish non-dom tax status and replace it with a system similar to those in Germany and Canada, where temporary residents are allowed to avoid paying domestic tax on overseas earnings. Shadow chancellor Rachel Reeves accused Mr Hunt of endorsing “tax-free income for millionaires, while millions face frozen tax allowances and council tax hikes”.
In an apparent reference to Mr Sunak’s household, she added: “How can he possibly claim that this is fair? He refuses to act, and I wonder why. Maybe that was the only policy that he can’t get signed off by No 10 Downing Street. I say, if you make Britain your home, you should pay your taxes here.”
A Treasury spokesperson pointed to Mr Hunt’s comments that axeing the status would be the “wrong thing to do in terms of jobs and prosperity for the United Kingdom”.
