Business Week: Reversal on Non-dom tax policy is logical, but what impact on other taxpayers?
Revamped Article:
Hangin' out at Royal Ascot the other day, losin' dough in bright sunshine, and it hit me: Rachel Reeves is shuttin' the barn doors after the thoroughbreds have bolted.
I'm talkin' 'bout the non-doms, the mega-rich taxpayers who skedaddled, leavin' Rishi Sunak scramblin' to dilute the changes to the non-dom tax. Too little, too late? And hell, what about the rest of us?
The truth is, most of us won't ever set eyes on one of these near-mythical non-doms – ultra-wealthy individuals who've enjoyed special tax deals, shieldin' their overseas cash from the UK Treasury. By definition, they live in a whole different world from us, but as a nation, their contributions have been felt – the taxes they've paid here in the UK.
Before the government tightened the rules, we had around 70,000 claimin' non-dom status, and they fork over an average of £120,000 a year in direct UK taxes. Some paid less, some paid more – and some paid millions on their UK activities while their foreign fortunes went untouched, foreign business, foreign problem.
The last government started tamperin' with the rules, and then Labour came along, announcin' that the non-dom status would be nixed, and that foreign wealth would fall under UK inheritance tax rules.
In April, worldwide assets of everyone enjoyin' UK residency became liable for UK inheritance tax at 40%.
A predictable stampede
Unsurprisingly, and completely predictably, a lot of non-doms just said, "no thanks" – and they decamped to countries with friendlier regimes. Italy, for one, rolled out the red carpet.
Now, it seems that faced with the reality that the non-dom reforms won't rake in anywhere near the cash claimed – and could even be a net loss for the Treasury – Rachel Reeves is said to be reviewin' the inheritance tax rules in a bid to make the UK still appealing and competitive.
The government wants foreign investment – they need it – and it looks like the Chancellor has finally woken up to the fact that the mega-rich, yes, even them, don't like gettin' hammered with punitive tax raids.
But here's the thing, the damage has already been done – the UK is still attractive – for plenty of reasons – but it ain't seen as a welcoming and logical jurisdiction for the globally mobile ultra-wealthy anymore.
A desperate U-turn from the Treasury might slow the exodus, but it won't fix the damage caused by the government's illogical and ideological tax hikes.
But if Reeves has looked at the numbers and conceded that she might have gone too far – and that's what the numbers suggest – why only offer a policy correction for the mega-rich?
What about the rest of the country?
The imposition of VAT on private school fees has blown up – schools have closed, and thousands of students have overflowed into the state sector, way more than the government said would happen. The policy won't rake in the cash that ministers claimed, and the state sector will pay the price.
Just like the non-dom crackdown, it was an ideological decision – somethin' that played well for Labour in the campaign but now, in real life, is backfirin'. They should apologize and scrap it.
The hike in National Insurance contributions for employers is chillin' the jobs market – makin' it impossible for many businesses to hire. They should apologize and scrap it.
That tax hike on jobs has led directly to a disastrous crunch in business investment – with the CBI sayin' this week that they've seen businesses' investment plans tank to the worst level in five years, leadin' the business group to slash its forecasts for UK economic growth. That's what happens when you raise taxes on jobs. The government should apologize and scrap it.
The cruel decision to extend inheritance tax to farms and family businesses will have – is havin' – a terrible impact on the finances and future plans for people all across the country. The government should apologize and scrap it.
The doom loop of low growth and high tax
Alright, I get it. I don't expect the government to reverse any of these main tax changes. In fact, as you know, I suspect they'll hike taxes again in the Autumn Budget as we slide into a doom loop where tax hikes cause low growth, so the government hikes taxes to fill the black hole.
A tweak to the non-dom rules is necessity, it's common sense – but it won't be enough. The damage caused by this government's £40bn tax raid on UK employers, businesses, farmers, and entrepreneurs is kickin' off exactly as predicted.
The Chancellor may have woken up to the damage caused by a part of that agenda, but sadly, she's still walkin' in her sleep when it comes to the rest of us.
- The revamped non-dom tax rules have led some ultra-wealthy individuals to relocate to countries with friendlier regimes, such as Italy.
- The government's policy of imposing VAT on private school fees has resulted in schools closing and an overflow of students into the state sector, contrary to initial claims about the policy's potential revenues.
- The hike in National Insurance contributions for employers is causing difficulties in the jobs market, making it challenging for many businesses to hire.
- The government's decision to extend inheritance tax to farms and family businesses has had a drastic impact on the finances and future plans of people across the country.
