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Miliband challenge over non-doms

Published 08/04/2015

Labour leader Ed Miliband is vowing to end non-domicile status is Labour wins power
Labour leader Ed Miliband is vowing to end non-domicile status is Labour wins power

Ed Miliband has challenged the Conservatives to "stop defending the indefensible" and match a Labour pledge to strip wealthy individuals of their "non-dom" tax break status.

But he faced Tory claims that the policy was in "chaos" after it emerged shadow chancellor Ed Balls recently suggested that abolition could cost the country more than it raised as people left the country.

The Opposition leader said a Labour government would end abuse of the colonial-era loophole by stripping the right to use it from anyone other than those living in the UK for a "brief" period.

He dismissed fears of an exodus of wealth and insisted that it was not only morally right to stop the UK operating as a "tax haven" but the reforms could also raise "at least hundreds of millions of pounds".

Chancellor George Osborne said Mr Balls had been right in January to warn it would hit public funds but also claimed Labour's plans amounted to a minor "tinkering" that would change little.

The use of "non-dom" status by long-term residents of this country to protect overseas income from UK taxes - including high-profile figures such as Chelsea Football Club owner Roman Abramovich - has been a controversial political issue since the numbers spiralled under Labour.

Charges to use the status - which is unique to Britain among major economies - were imposed in 2008 and significantly increased since in an attempt to deal with the issue.

But in the latest salvo of efforts to persuade voters the Tories would prioritise the well-off, Mr Miliband said it was "a very British value that we all play by the same rules".

"Why should people be able to enjoy all of the virtues of our great country and not pay tax like everyone else? Why should there be one rule for some people and another rule for everybody else?" he asked.

"It means higher taxes for working people and business people and starving money from our public services.

"It isn't fair, it isn''t just, it holds Britain back and we will stop it. The next Labour government will abolish the non-dom rule."

In a January radio interview seized on by the Tories, Mr Balls said abolishing non-dom status "probably ... ends up costing Britain money because there will be some people who will then leave the country".

Asked by BBC Radio Leeds at the time if he would scrap the status, he said he was looking at tightening the system to "make sure the non-dom rules work in a fair way".

Prime Minister David Cameron said Labour appeared "f rankly pretty chaotic - on the one hand saying they want to get rid of non-dom status and on the other saying that if they did so it would cost the country money".

"This goes to a bigger issue, which is when you see such confusion over a policy like this, are these people really capable or competent of running an economy?"

Mr Osborne said exemptions for those staying temporarily in the UK - which Mr Balls said should be defined as around three or four years - meant " the majority of non-doms are not affected at all".

Mr Balls, who conceded today that the benefits to the Treasury remained "very uncertain" because it was not known how much tax non-doms avoided, said the policy was "exactly" in line with the firmer action he spoke about in January.

"Independent experts have said that the changes we are proposing today - abolishing non-dom status while allowing for genuine temporary residence - will raise revenue," he wrote.

Unveiling the policy at the University of Warwick, Mr Miliband was pressed repeatedly over the shadow chancellor's previous analysis.

"The truth is that we have found a way to do this that independent experts say is actually going to raise money," he said.

"You have seen many people out this morning saying it is going to raise at least hundreds of millions of pounds and it is the right thing to do - and it is what Ed Balls said on the radio this morning," he said.

He told reporters: "I don't buy the argument about it not raising resources and nor do independent experts and I also am absolutely clear this is the right principle."

Dismissing the prospect of an exodus of wealthy high-earners, Mr Miliband said: "We've heard all of these arguments before and it's quite simple really - it's what people with special privileges say when they want to carry on justifying those special privileges.

"My challenge to the Prime Minister and the Chancellor is simple: stop defending the indefensible and abolish the non-dom rule. It is the right thing for the country."

Lib Dem leader Nick Clegg said his party would "look at whether there's a case for ending non-dom status after a certain period of time".

His party is promising to increase charges on those who enjoy the status, and end the right to inherit it, which Mr Clegg said "doesn't make any sense at all".

During a visit to a wheel manufacturer, he joked that the "wheels are starting to come off Labour's announcement because it turns out it isn't actually a ban".

"As Labour themselves have been forced to admit, there is a role for allowing people to come here who want to play by the rules who aren't necessarily, by the way, massively rich to nonetheless have a particular tax status during the time they are in Britain.

"In pursuing a headline, Labour forget that we must remain an open economy, but of course an economy which is not open to abuse."

Ukip said the impact on the public finances of scrapping the status should be examined by an independent commission it has proposed to look into avoidance more widely.

Economics spokesman Patrick O'Flynn said ordinary tax payers would "look askance at arrangements which seem to be sweetheart deals for much wealthier people".

"But to be honest if it is going to blow a new hole in the public finances because there would be a huge flight as some people suggest then that wouldn't be a sensible course.

"This is something that should be decided by expert objective opinion rather than something the country is bounced into by a Labour election stunt."

Ukip would also end the "ludicrous" inheritance of non-dom status, he said.

He accused the Tories of being obsessed with "showing up Labour rather than addressing the serious underlying issue of whether the powerful and privileged are paying their fair share of tax."

In his Autumn Statement, Mr Osborne said he wanted to "preserve the non-dom status that makes our country attractive."

Announcing an increase to £60,000 in the annual charge for those in the UK for 12 of the last 14 years and a new £90,000 charge for those resident for 17 of the past 20, he told MPs: "But I want them to pay a fair contribution while having certainty about their future arrangements."

The Tories said that the only expert cited by Labour to back their claims that the policy would raise extra cash for the Treasury was specialist tax lawyer Jolyon Maugham, a party member.

The barrister wrote a recent blog which questioned why individuals would leave the country when the new charges had not had that effect.

"I'm not an economist - and the data is poor," he conceded, but said that a realistic assessment of the likely outcome of such a policy "would still leave a yield well north of £1 billion."

Mr Maugham said non-dom status was an"unsightly bribe to those with some foreign connection to come to or remain in the UK".

He told Sky News there was no reason to suspect "the sky would fall in" if the policy was put in place.

The party also cited tax campaigner Richard Murphy who wrote on his blog that the Labour policy was an effective abolition of the non-dom rule.

"It is a short term residence rule that says we welcome short term stays and do not want to put obstacles in the path of those coming on that basis.

"But it also says if you stay you are on a level playing field with everyone else in this country, and if Osborne is frightened to say that, shame on him."

Speaking in Grimsby, Nigel Farage said: "When you look at the effect it's had on the London property market and everything else, then people should pay their fair share.

"The other thing that really gets me is that a lot of people come to London, go down Bond Street, spend a few hundred grand on jewellery, get to Heathrow and get the VAT back.

"So, there are things we can do. Should Zac Goldsmith be able to inherit non-dom status from his father? Certainly not.

"I don't think Miliband's completely wide of the mark talking about it but, if he brings it in as a blanket, might that mean we might lose people who might be job creators? We've got to assess it carefully."

He said of Labour: "There is a consistent theme - it's mansion tax, it's an increase in income tax and now it's getting rid of non-doms.

"The problem is that the richest 1% of the country are already paying about 25% of the income tax that we generate. Taxes need to be fair, taxes need to be sensible, otherwise the rich just leave."

Pressed, he said he would increase the premium and abolish the ability to inherit non-dom status.

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