The Government unveiled a crackdown on wealthy non-domiciled residents who pay little or no tax in the UK yesterday, introducing a £30,000 annual charge for those who have been resident in the country for more than seven years.
The policy, which is similar to proposals made by the shadow Chancellor, George Osborne, at the Conservative Party conference last week, will earn the Government some £800m in additional tax revenues in 2009 and a further £500m a year from 2010.
The Treasury is also planning to consult on raising the charge for those non-domiciled residents who have been in the UK for more than 10 years.
Last week, Mr Osborne proposed that all non-domiciled residents were charged a fee of £25,000 – regardless of how long they had resided in the UK. Mr Osborne claimed that there are about 150,000 non-domiciled residents in the UK, estimating that the policy would raise some £3.5bn a year.
Alistair Darling, the Chancellor, dismissed the Conservative figures as inaccurate, and moved to distance himself from their policy by claiming his decision to only implement the charge on those who had lived in the UK for more than seven years would ensure most non-domiciled residents would not be affected.
"There are in fact only 115,000 registered non-domiciles," said Mr Darling. "If the charge of £25,000 was imposed, only an estimated 15,000 would earn sufficient money abroad to make it worthwhile to maintain non-domicile status. As a result, the combined effect of people paying this charge or changing their tax status would be revenue not of £3.5bn, but £650m a year at most. A shortfall of more than £2bn."
Mr Darling added that non-domiciled residents currently pay more than £4bn in UK tax each year, claiming that any sweeping charge may discourage many from coming to the UK. "Such a charge could discourage men and women – doctors and nurses, businessmen and women – from coming to this country for short-term work and who do pay tax on their earnings here, and who do contribute to the country's wealth," he said. "We don't want to turn them away."
A privileged few
What are "non doms"?
The 115,000 wealthy foreigners who live here and take advantage of tax loophole in which they are registered as non-domiciled residents.
Who are they?
They range from financiers from overseas to sports stars. Examples include Harrods owner Mohamed Al Fayed and Chelsea FC's Roman Abramovich.
What is Labour proposing?
To consult on early legislation on non-domiciled taxpayers, as a first step to introducing a tax charge after seven years, then a higher rate after 10 years.
What are the Tories proposing?
To raise £3.5bn from a £25,000 flat-rate charge on non-doms. Labour says this would in fact raise just £650m.