Issue personally sensitive for the prime minister, whose wife Akshata Murty previously benefited from non-dom status…reports Asian Lite News
Jeremy Hunt is considering ending or reducing “non-dom” tax breaks that allow wealthy individuals to live in the UK while their wealth is considered as residing overseas.
The measure is on a list of potential revenue raising measures being assessed ahead of next week’s budget, and could be enacted to give the chancellor room to cut universal taxes.
The move, first reported by the Financial Times, could raise more than £3bn for the exchequer and would be politically eye-catching given Hunt and successive Conservative governments have resisted calls to abandon it – arguing it makes the UK more attractive to foreign wealth creators.
It is also personally sensitive for the prime minister, whose wife Akshata Murty, daughter of the billionaire founder of the Indian software giant Infosys, previously benefited from non-dom status.
“Non-dom” is short for “non-domiciled individual” and refers specifically to the tax status of a person who is a UK resident but whose permanent home is abroad.
Non-doms only have to pay tax on money earned in the UK, while their overseas income and wealth are not subject to UK tax – and they can benefit from the status for up to 15 years.
This allows wealthy individuals to make significant and entirely legal tax savings if they choose to be domiciled for tax purposes in a lower-tax jurisdiction.
Labour has long supported ditching non-dom status and has proposed cutting the duration of benefits to just four years in a concession to what they call genuinely temporary UK residents.
That similar measures are now being considered by Hunt demonstrates both the tightness of the public finances, and the political imperatives of an election year budget.
Hunt is attempting to find money to fund personal tax cuts he and the prime minister believe are potential vote winners, but is constrained by his own fiscal rules, an arbitrary set of restraints intended to demonstrate responsible economic management.
These require that debt falls as a proportion of GDP in the fifth year of economic forecast prepared by the Office for Budget Responsibility (OBR).
These forecasts include a figure for headroom, the amount of “spare” cash notionally available to stay within the rules, and this effectively sets the chancellor’s room for manoeuvre.
The OBR prepares multiple forecasts in the run up to a budget, the most recent of which was delivered on Wednesday with the final version due to be handed over on Friday.
Other measures reportedly under consideration are a tax on vapes and cuts to departmental spending, though many economists believe these are already inevitable on the government’s current economic plans.
Adopting a popular Labour proposal that affects only the very richest would create a little more headroom and little controversy other than the charge of hypocrisy, but it might be a headache for the Opposition, who have said they will stick to the same fiscal rules.
With one of their few distinct revenue sources already used up, Conservative strategists believe Keir Starmer and Rachel Reeves would be forced to explain how they will raise money already committed to spending plans without raising the taxes Hunt hopes to cut. The Treasury declined to comment.
‘Spend money on schools, NHS’
Meanwhile, Labour has said it would spend the money generated from scrapping non-dom status on schools and the NHS. But if the government used it to fund tax cuts this would pose a dilemma for the party if it wins power in this year’s general election.
If Labour backs any tax cuts the chancellor announced, which they are expected to do, this would leave questions over how some of their spending pledges would be funded.
Labour’s shadow chancellor Rachel Reeves has claimed whichever party wins the next election will inherit “the worst set of economic circumstances since the Second World War”.
She said that after former Chancellor George Osborne’s promise to “fix the roof” while the sun was shining, “the Conservatives have broken the windows, kicked the door in and now they’re burning the house down”.
This is a reference to the expectation that in next week’s Budget the chancellor will use up almost all the room for manoeuvre within his self-imposed borrowing rules.
Labour has said it will stick to the key rule that the national debt should in five year’s time fall as a share of the national economy.
The government might choose to use up most of what is known as “fiscal headroom”, and then suggest Labour would have to raise taxes.
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