Written by Nigel Green, founder and chief executive of deVere Group
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Ed Miliband’s promise to scrap the non-domicile tax status should Labour get into power at the general election in May is naïve, reckless and ill-conceived.
The 18th century law, allowing people to live in the UK and claim another country as their permanent home has helped Britain to gain a colossal global competitive advantage. It has, as most financial experts agree, helped attract wealthy, talented and successful individuals who then, of course, pay tax on their UK-based income boosting tax revenues directly and supporting the British economy in a myriad of other ways indirectly.
Yet the Labour leader’s announcement to abolish the non-dom rule would, according to Miliband, "raise hundreds of millions of pounds" in tax revenue. He claims the law in effect makes Britain "an offshore tax haven" and his plans to scrap it form part of his pledge to ensure people "with the broadest shoulders bear the most."
Is this naïve? Yes, most certainly. It smacks of a total lack of understanding of how things work in the real world.
This move, in my view, is simply a rash, foolhardy attempt at winning votes ahead of 7th May. It remains unclear and exceptionally unconvincing what additional revenue would be raised should this rule be scrapped, but Britain’s global reputation would be jeopardised.
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By GlobalDataWhy? The UK has a world-renowned competitive tax system which attracts some of the wealthiest, most successful professionals. Yet, by eradicating the non-dom tax status, these high earners – who have the resources to relocate relatively easily – will be drawn to comparatively lower tax jurisdictions. This is coupled with the fact that major international talent will be deterred from coming to Britain in the first place.
Indeed, non-doms pay VAT, capital gains tax, income tax and stamp duty, with some also paying up to £90,000 a year in order to remain in the UK. According to HMRC statistics, during 2012-2013, 115,000 non-doms contributed £8.2 billion to the UK economy, which is equal to the sum raised from some 10 million low rate income tax payers.
It can be reasonably assumed that Ed Miliband’s plans would have serious repercussions in the City. Internationally mobile individuals have always welcomed the British capital as a hub of excellence for global investment, however obliterating non-dom status could see a repeat of the 1970s, when high earners exited in their droves due to tax hikes. We could also see a similar situation as happened in France when President Hollande introduced the 75 per cent tax rate for high earners in his 2012 election campaign, resulting in a mass exodus.
Consequently, the country’s sustainable long-term economic growth will undeniably suffer down the line if these absurd plans goahead.
Yet Labour considers this to be the price that must be paid. I vehemently disagree.
And it would appear I am most certainly not alone.
Since Ed Miliband set out his party’s manifesto, consultants at deVere United Kingdom, part of deVere Group, one of the world’s largest independent financial advisory organisations, have reported a significant number of high net worth clients indicating they would leave Britain if Labour’s plans came into effect.
I am not at all surprised by such a reaction to Mr Miliband’s proposal, but even I am somewhat taken aback by the speed at which such a large number of people responded. This should set off alarm bells that this policy is fundamentally flawed.
To my mind Labour’s proposals are dangerous and misguided. It is ludicrous to dissuade wealthy, employment-creating individuals from moving to or staying in the UK, essentially placing them in an ‘adjust or exit’ position. Other countries are actively trying to encourage them – we should be doing the same in Britain.
In short, Ed Miliband’s promise to "change Britain" could backfire in a spectacular way.
