Rachel Reeves, Labour’s shadow chancellor, took a small step in the right direction by promising to get rid of non-domiciled tax status. This announcement – before the local elections – had three parts. Firstly, it helps rally traditional Labor voters who see the very wealthy benefiting as they battle tax hikes and the cost of living crisis. Second, the pledge refocuses voters’ attention on political opponents of Ms Reeves such as the Chancellor, Rishi Sunak, whose wife avoided paying up to £20million in UK tax in as long as non-dom; and Sajid Javid, the health secretary, who held non-dom status for six years while a banker. Third, it proves that Ms. Reeves’ tax review could be more radical than previously imagined.
The concern is that there may be less to the plan than it appears. Britain should scrap the exemption, an archaic legacy of empire in which benefits are largely determined by paternal lineage. Non-doms do not pay tax in Britain on income generated overseas. Yet Ms Reeves plans to replace that benefit with a “temporary resident tax regime” similar to that in countries like France, Germany and Canada. Labor has said it will consult on its proposals, but aims to provide tax benefits to such residents for five years, up from up to 15 under the current system. Such proposals are not new. As Labor leader Ed Miliband proposed a similar exemption to avoid deterring talented foreigners.
The tax rule has been a symbol of privilege for the wealthy for a decade. In 2008 Gordon Brown introduced an annual charge of £30,000 on non-doms. The Tories increased it in 2015 for long-term residents. Those sums won’t bother the very wealthy, who are much more likely to use non-dom status. Some wealthy people may leave if Ms. Reeves keeps her promises. But most non-doms don’t come to Britain for the tax breaks; the rule of law, private education and culture are major assets. Many choose to remain in Britain after their non-dom status ends. Most are workers: about 80% of non-doms sell their labor, rather than living on the income from their investments.
Mrs. Reeves should be braver. Inequality in Britain is inextricably linked to the rise of finance in the economy. A recent report from the London School of Economics and the University of Warwick found that one in five bankers had claimed non-dom status. Paul Johnson of the Institute for Fiscal Studies points out that the total wage income received by the top 0.1% in 2018-19 was £37bn, and 44% of those people worked in financial services. Nearly a third of the 0.1% were born abroad. The global nature of finance means foreign bankers coming to London can benefit significantly from non-dom status.
But people who can afford to pay taxes and enjoy the benefits Britain offers should contribute. Letting the rich pay a tiny fraction of their income to avoid UK tax while ordinary people face a growing burden is unfair. Labor should end — rather than simply limit — no-dom status, which allows one rule for the wealthy and another for everyone else.