Ross Clark Ross Clark

The problem with Rachel Reeves’s non-dom tax plan

Rachel Reeves (Credit: Getty images)

By abolishing non-dom status, Jeremy Hunt was supposed to have clipped the wings of the shadow chancellor Rachel Reeves. Given that she had already earmarked the extra revenue – or what she hoped would be extra revenue – for free school breakfasts and a few other things, Hunt had suddenly punched a hole in her spending plans.

But Reeves now claims to have filled that hole. She claims that she will raise an extra £2.6 billion – on top of what the Chancellor is expecting to raise – by closing a few loopholes. Non-doms will no longer be allowed to escape inheritance tax by placing wealth held overseas into trusts. Reeves will also remove the 50 per cent discount that Hunt offered non-doms on overseas earnings and capital gains during their first year living in Britain.    

By their very nature non-doms tend to be highly mobile people who don’t need to live in Britain

All Labour’s spending plans will be fully costed, says Reeves. But it is one thing to present the country with a spreadsheet; quite another to actually raise the money listed on that spreadsheet. The trouble with trying to calculate how much money the Treasury will earn by changing the tax status of non-doms is that no-one really knows how they will behave when faced with the prospect of extra tax bills. By their very nature they tend to be highly mobile people who don’t need to live in Britain. Many might be unbothered by a modest rise in their tax bills, but they are unlikely to hang around if they feel they are being milked.    

New Labour introduced the concept of a focus group to Britain; what Reeves really needs now is a focus group made up entirely of non-doms whose attitude towards extra taxes can be tested. She needs to hook them up to electronic knobs they can twiddle to show their feelings while she shows them videos of Jeremy Hunt’s budget and then her own speeches. Do they express negative sentiment when presented with the prospect of the end of non-dom status, or the closure of the inheritance tax loophole and others Reeves claims to have found? I suspect that Reeves has assembled no such focus group and will therefore be in the dark when – and if – she presents her first budget.

Jeremy Corbyn, lest it be forgotten, presented the country with fully costed spending plans, in as much as he gave us two sets of figures, income and expenditure, which notionally added up. But that counts for very little if the figures for what the Treasury will earn from tax changes are based on dodgy assumptions. If Reeves wants all schoolchildren to have free breakfasts (including those from well-off homes) she may well find herself having to look elsewhere for the revenue.

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