Treasury officials are warning that a Labour tax rise on ‘non-doms’, far from raising more cash, will actually cost money instead. The Government is on a very steep learning curve that punishing taxes don’t work, says Matthew Lynn in the Telegraph.
It was going to pay for universal breakfast clubs in schools, for better hospitals, and more dental treatment on the NHS.
In the run-up to the election campaign, we heard a great deal from the Labour Party about all the extra services that would be paid for with its clampdown on “non-doms”, the small group of wealthy foreigners who pay less tax than the rest of us.
And yet, we have now learnt that Treasury officials are warning that the extra tax, far from raising more cash, will actually cost money instead. In reality, the Government is on a very steep learning curve, and it is about to discover that class war, and punishing taxes, don’t work.
Its non-dom policy may appear a small tweak, but it’s turning into a catastrophe for the British economy – and one that will leave us all worse off.
It would be hard to think of a more spectacular own-goal, so early into the life of a new Government. A clampdown on non-doms was a centrepiece of Labour’s campaign for power, with every shadow minister promising an endless series of freebies that would be seemingly paid for with extra taxes on U.K. residents whose permanent homes are overseas.
The former chancellor Jeremy Hunt was nudged into tougher non-dom rules, at which point Rachel Reeves immediately doubled down, pledging even higher taxes on foreigners who choose to live and work in Britain. One way or another, she was determined to get her hands on their money.
And yet, according to reports this week, officials are already warning that it will not work out as planned. The Office for Budget Responsibility (OBR) originally forecast that scrapping the tax break for wealthy foreigners could raise about £3.2bn a year, although the fiscal watchdog also warned that figure was “highly uncertain”.
It now appears likely that the OBR will update its predictions to say that the clampdown might actually cost £1bn or more in lost revenues.
Well, gosh. That’s a surprise. It turns out that wealthy Indians, Chinese or Americans don’t actually want to pay higher taxes in the U.K. We have plenty of anecdotal evidence from accountants and lawyers that they are already moving elsewhere. After all, by definition these are some of the most mobile people in the world.
Worth reading in full.
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