The news out of Davos, where the chancellor has been on a winter charm offensive with the global elite, would appear to be another concession to those who, it could reasonably be argued, need it least.
The changes Rachel Reeves is proposing to the bill on the taxation of non-doms – those considered not domiciled in the UK – may be more of a tweak than a U-turn. But the message that any softening of her proposals in this particular area risks sending to voters and taxpayers at home is that, if you have the money, or the clout, then this government will heed your concerns. And if not – pensioners, farmers and others – it won’t.
But this move should perhaps be interpreted differently – and more positively. We have asked this government to be non-ideological in its pursuit of economic growth. Taxing the super-rich for the sake of taxing the super-rich is not the way to go, however popular such a policy might be in some quarters.
The objective should be compensation, not confiscation. That the government intends to adjust its changes to the taxation of non-doms emerged from an interview Ms Reeves gave to The Wall Street Journal, where she said that the government would propose amendments to the Finance Bill, in response to concerns that had been expressed.
One change would extend the proposed three-year time limit for bringing money into the UK essentially tax-free. The other would clarify that existing double-taxation agreements applied also to inheritance tax, so that non-doms need not worry about demands to pay tax on the same fortune in two jurisdictions.
None of the changes, so the Treasury says, will affect the gains that were forecast to accrue to the Exchequer – and if that is so, then there would seem to be no losers here. The meat of the measures will remain. But it is worth keeping a watchful eye. There is a difference between making sensible adjustments and bowing to the special pleading of a select group, where the advantage flows only one way.
The dilemma for Ms Reeves appears to reflect the initial impact of the non-dom changes announced in the Budget, which may have been greater, perhaps a lot greater, than expected, in terms of the number of wealthy individuals not just stating their intention to leave the UK, but actually doing so. And fewer super-rich people residing in the UK, even with tax privileges, will almost inevitably mean lower receipts for the Exchequer. If you want growth, driving wealth away may not be the best way to achieve that.
For decades, the refrain has been that the quality of life, the public schools, the wide range of luxury shopping and services, not to speak of the investment returns on housing, all underpinned by the rule of law, comprised this country’s unique selling points. Ms Reeves and her government appeared to believe that the global rich would be prepared to pay a tad more for them. They may have been over-optimistic.
Whether it is because some of these selling points are now less unique to the UK, because wealthy individuals fear further moves in their direction from a Labour government, or because the international tax environment has become even more competitive than it was before – and because, for the global rich, it has become (even) more about the money than it always was – Ms Reeves appears to have underestimated the damage her raid on non-doms might do.
She cannot say that she was not warned. There were reasons why previous governments resisted the temptation to target non-doms, politically popular though that might have been. Ms Reeves is now having to beat a partial retreat in the light of harsh reality. This is embarrassing for her, given that the measures on non-doms had been included in her Budget with loud fanfare. On the other hand, she is probably wise to cut her losses sooner rather than later. The risk remains that the UK may already have lost not just some of its highest future taxpayers, but some of its potentially greatest wealth creators. Will some abandon their plans to leave; could others think again, if they see a chancellor who listens and acts on justified complaints?
That is what Ms Reeves and the government must hope. If the chancellor wants to come across as serious about encouraging economic growth, she cannot at the same time be seen to be pushing measures that are having, or would have, the opposite effect. This is a danger with the swingeing national insurance increases to be paid by employers, and not just the biggest employers. Early reports suggest that this is already reducing the number of new jobs – and with them opportunities for the economy to grow.
On the other hand, the government has made clear that the pursuit of net zero and at least some of the green agenda will be subordinated to growth. So far, these are mixed messages.
Yes, the environment must be protected, and yes, the rights of workers and the less advantaged must be protected, too. But the priority must be growth, and in her partial retreat on the taxation of non-doms, the chancellor has done her bit to show that she knows this. Both she and the government as a whole nonetheless have some way to go before they get the balance right.
