Non-domicile Tax Status

Anthony Browne Excerpts

Tuesday 31st January 2023 Commons Chamber

[James Murray]

We are debating the importance of a fair tax system for the future of this country. This Government have sat on non-dom tax status for months and years. We are questioning why this Prime Minister is not heeding Labour’s calls to abolish the non-dom tax status once and for all, and spend the money on the NHS, childcare and a growing economy.

When the Government are making working people pay more tax, it is simply wrong to allow wealthy people with overseas incomes to continue to benefit from an outdated tax break. It is also bad for UK business. The loophole prevents non-doms from being able to invest their foreign income in the UK, as bringing it here means that it becomes liable for UK tax. That is why the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), first set out our party’s position last April—four Conservative Chancellors ago. She confirmed that, in government, Labour would abolish the non-dom status as part of our reforms to create a fairer tax system for working people. We will abolish that indefensible 200-year-old tax loophole and introduce a modern scheme for people who are genuinely living in the UK for short periods.

Labour believes that, if a person makes Britain their home, they should pay their taxes here. That patriotic point should be accepted on all sides of the political divide, yet Ministers in this Government, under this Prime Minister, seem desperate to defend the non-dom loophole. What is it about the current Prime Minister that makes him so reluctant to abolish non-dom tax status? The Government are increasing taxes on working people, businesses are struggling, and our NHS is in crisis. Yet the Conservatives defend a small number of rich people who use non-dom tax status and offshore trusts to wriggle out of paying taxes here in Britain.

We know that the Prime Minister understands how non-dom tax status works—he can hardly claim ignorance on that—so how can he possibly justify it? How do Conservative MPs look their constituents in the eye and tell them that their taxes will keep going up, while the taxes of non-doms must always stay down? It is indefensible, and that is why the next Labour Government will act by abolishing the non-dom tax status.

[Anthony Browne (South Cambridgeshire) (Con)]

The hon. Member asks what makes this current Prime Minister reluctant to change non-dom tax status, but what made Tony Blair and Gordon Brown, the former Labour Prime Ministers, also very reluctant to scrap the non-dom tax status? They both reviewed it and both kept it.

[James Murray]

We were not increasing taxes on working people when we were in government. The hon. Gentleman can start looking at the record 13 years ago, but it is high time that Members on the Government Benches took responsibility for what they have done in government—for the low growth, for the high taxes on working people and for the fact that our public services are crumbling.

[James Murray]

As my hon. Friend reminds us, increasing taxes on working people has long been a hallmark of the Conservatives. That has led us to a situation where we have the highest tax burden on working people in more than 70 years.

[Anthony Browne]

Will the hon. Gentleman give way?

[James Murray]

No, I will make some progress. Our position contrasts with that of the current Government, whose Ministers have been at pains over the past year to protect this unfair loophole. When the Chancellor told the Treasury Committee last November that he wants

“to make sure that wealthy foreigners pay as much tax in this country as possible”,

his words could not have rung more hollow. They rang almost as hollow as the Prime Minister’s promise when he took office that he would run a Government of “integrity, professionalism and accountability.” The truth is that the Prime Minister is running a Government without even basic competence and it is hitting people across this country.

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[Anthony Browne (South Cambridgeshire) (Con)]

It is a pleasure to follow the hon. Member for Bradford West (Naz Shah).

I want to start by congratulating the Government on what today’s IMF report says about economic growth last year. Despite what some Opposition Members have said, the fact is that we had the fastest-growing economy in the G7 last year, with a growth rate of 4.1%. Our economy grew twice as fast as America and Germany, 1.5 times as fast as France and almost three times as fast as Japan. Those are the facts.

I turn to the Opposition motion. I will address first the policy, then the motion itself, and finally the politics. On policy, I think there is some agreement between our position, Labour’s and the SNP’s. We want a tax system that is fair—clearly people who are better off need to pay their fair share of tax—but that is also attractive to internationally mobile people, whether they are overseas students or international businesspeople. Thirty-five jurisdictions around the world have regimes involving temporary residence tax schemes similar to the non-dom scheme. They might go by different names, but they have the same basis. If people are in a country for a certain length of time but it is not their permanent destination, they should be subject to a regime whereby they pay tax on their local income but not on their international income, and, in fact, I think that that is Labour’s policy.

As for the non-dom scheme in the UK, this Government reduced the period to 15 years—it was previously a permanent scheme—and I think that that was the right thing to do, although questions are being asked about whether it should be reduced further, to 10 years or five. There are also problems that have been rightly ridiculed in the media. For example, people have previously been able to inherit non-dom status. There is also no clear legal definition of “domicile”, although it ought to be crystal clear. I would certainly welcome reforms to the regime. Labour says that it would abolish non-dom status, but I suspect that it would just introduce a new regime that would do remarkably similar things to ensure that internationally mobile people who bring benefits to the economy can come here.

As for the economic impact of scrapping non-dom status, I asked the hon. Member for Ealing North (James Murray) why he thought the previous Labour Prime Ministers, Tony Blair and Gordon Brown, had not done it, and gave him the answer: they had carried out a review and concluded that, overall, the benefits of non-dom status were greater than the cost and so it brought a net benefit to the economy. There is a spectrum of data, and we do need the data, but if the regime were scrapped and everyone who abided by it suddenly fled in a mass wealth exodus, there would clearly be a huge net loss to the Treasury, whereas if it were scrapped and not replaced with anything, and all those people stayed here and suddenly started paying tax on their overseas earnings, the £3.2 billion a year that we have heard about would clearly bring a net benefit. What really matters is what the response would be among existing non-dom people but also among future ones who might not come to the UK as a result. It is necessary to have the precise data to create the optimum scheme, so that we not only raise revenue for the UK Government to pay for public services but ensure that people pay their fair share.

We clearly should not publish Treasury advice, as the motion suggests, for all the reasons given by my right hon. and learned Friend the Member for Northampton North (Michael Ellis).

Finally, let me comment on the politics: why does Labour keep focusing on this one issue rather than many others that are actually more important? It is all about politics. Labour is the party of envy, and we are the party of aspiration. We are the party of workers. We have reduced tax on working people, we have increased funding for the NHS to historically record levels, and all that Labour Members are trying to do is play politics with us.

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[Aaron Bell (Newcastle-under-Lyme) (Con)]

It is a pleasure to follow the hon. Member for St Helens South and Whiston (Ms Rimmer). On the wording of the motion, I cannot really add much more to the comments from my right hon. and learned Friend the Member for Northampton North (Michael Ellis). The Opposition know perfectly well that analysis from officials is confidential for a very good reason: to make sure that Ministers have the best possible advice without second-guessing what that might look like in the public domain and potentially affecting markets.

Turning to the substance of the non-dom situation, I really think this is a case where Labour is chasing a mirage. The Government could do with raising more tax if that low-hanging fruit, that £3.2 billion, was really out there, because of the present fiscal situation as a result of the money we have spent protecting people’s livelihoods during covid, through the furlough scheme, and on supporting people with high energy bills this winter. We could do with raising more tax easily, if it was really there.

The hon. Member for St Helens South and Whiston spoke about the LSE and Warwick research, but I do not find that figure of 0.3% very credible because it refers to fewer than 100 people who would consider leaving because of all that additional tax on them. That figure has been extrapolated from the behavioural response to the previous changes, but those changes were more modest. They were modest because the Government took their decision for the same good reason that the previous Labour Government did: looking at the issue in the round, they concluded that this would not be a revenue raiser and it would not be good for the economy overall if we drove people abroad.

The shadow Minister, the hon. Member for Ealing North (James Murray), said that when people make their home here they should pay all their tax here, but those non-dom people would not make their home here —they would not come and invest in this country or employ people in this country—if they had to pay tax in that way. That is the key point. We cannot assume that all that low-hanging fruit is out there without assuming the behavioural responses that would follow.

Talking about non-compliance more generally, as the shadow Minister did in his speech, this Government have tackled non-compliance consistently since they came to power, with more than 150 measures since 2010. The estimated avoidance gap under Labour in 2005-06 was £4.8 billion. It was down to £1.2 billion in 2020-21 under this Government. That is already more than the £3.2 billion the Opposition are claiming is available.

The wealthiest have been paying more under this Government and we have been taking the poorest out of tax altogether, contrary to what we have heard from the Opposition. The personal allowance that we inherited in 2010 was £6,475; it is now £12,570, and we have raised the national insurance level as well. We have taken many people out of tax altogether and at the same time ensured that the poorest—the least well-off—are earning more when they are working because we have consistently raised the national living wage. Those are Conservative principles in action: real changes rewarding work and letting people keep more of their own money to spend as they see fit.

Labour obviously aspires to government, about which there have been increasingly cocky briefings in the press, but government is not about easy slogans. It is about taking decisions in the best long-term interest of the UK. It is not about soundbites, party management and trying to buy off the people in Momentum. I might have thought Labour would learn from the last Labour Government. People like Gordon Brown, who considered a five-year cap but abandoned it. People like Alistair Darling, who said that

“such a charge could discourage men and women—doctors and nurses, business men and women—from coming to this country…and we do not want to turn them away.”—[Official Report, 9 October 2007; Vol. 464, c. 171.]

People like Ed Balls, who said:

“I think if you abolish the whole status then probably it ends up costing Britain money because there will be some people who will then leave the country.”

I am sure the shadow Minister admires all those former Labour Ministers, and I am sure he and the shadow Chancellor aspire to the jobs they once held, so why are they going down this road? Because it is an easy, if inaccurate, response to the question they cannot answer: how will they pay for whatever fresh commitment they have made in any given week?

[Anthony Browne]

My hon. Friend is making an excellent speech. Does he agree that Labour is playing the classic Labour game of class war as a mirage to try to gather votes from the left?

[Aaron Bell]

The right hon. and learned Member for Holborn and St Pancras (Keir Starmer) has a difficult balancing act, because he has to hold his party together. He made a lot of promises to the left to win the leadership, and he has junked them all, so he is giving them a little red meat on non-dom status to try to keep them on board. I am sure there is a lot of party management happening on the Labour Benches.

Labour has already committed the supposed revenue from this policy to multiple policies. First, it was breakfast clubs, and then it was midwives, nurses and health visitors. The shadow Health Secretary had to admit that, even on Labour’s questionable estimates, the funds supposedly raised would not be enough to cover its NHS reforms. Time and again, Labour Front Benchers and Back Benchers alike hide behind this dubious policy, which I fear is a mirage in terms of the money it would raise, to justify yet more uncosted pledges. Labour has made so many uncosted commitments already: £150 billion of spending and less than £60 billion of revenue rises. We have heard £90 billion of uncosted commitments from Labour in this Parliament, which would cost each household more than £3,000.

That is what we get under a Labour Government, which is why we need to stick with a Conservative Government. Labour has never left office with unemployment lower than when it came to power and, of course, it cannot be trusted with the public finances, as we know from the note left by the right hon. Member for Birmingham, Hodge Hill (Liam Byrne): “there is no money.”

We will get the debt down, we will halve inflation and we will get growth going again. Voting for Labour would put all that at risk.

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[Rob Butler (Aylesbury) (Con)]

I rise to speak against the motion on the Order Paper. It is important that we recollect what that is. It says that Treasury analysis of a potential tax policy should be laid before the House two weeks before the Budget. Having listened very carefully to the previous four speakers from the Opposition Benches, I do not recall any of them actually addressing that point. That is surely because the Opposition know full well that no Government could publish pre-Budget advice, for the simple and straightforward reason that Budget announcements are market sensitive. No Government of any colour have ever published that sort of advice. Those on the Opposition Front Bench know that full well and they know that, if the situation were reversed, which, hopefully, it never will be, they would not publish it, either. It is important that the public understand exactly what has been put on the Order Paper by the Labour party, which has brought us here today.

This Conservative Government are absolutely committed to a fair tax system, ensuring that the UK attracts talented people to work and do business here and, at the same time, generating tax revenue that pays for our public services. That was brilliantly set out by my hon. Friend the Minister. It is, of course, vital that our tax regime is competitive and that talented entrepreneurs overseas see the UK as a country where their risk taking will be rewarded and where their commitment to developing their business will bring jobs to British people, strengthening our economy and generating in turn more tax that will pay for more public services. It is a virtuous circle.

Let me be clear that I am not in any way suggesting a blank cheque or a free ride for non-doms. I absolutely accept that non-dom status should not be permanent and I am pleased that we have already moved away from that. I absolutely agree with my hon. Friend the Member for Amber Valley (Nigel Mills) that there is scope for further reform, but that should be considered calmly and rationally.

Let us remember that non-domiciled individuals already pay tax on UK income and gains. They also pay tax on foreign income and gains if those moneys are brought into the UK. We have heard of some £8 billion in UK tax contributed in 2021 alone. I also made the point, when I intervened on the shadow Minister right at the beginning of the debate, that successive Labour Chancellors tried to reform the system and gave up, because they realised it was not the easy panacea that those on the current Labour Front Bench would have us believe. Even Ed Balls has said that abolishing non-dom status would probably end up costing Britain money, because some people would leave the country.

I make those points because it is important that, when we consider headline-grabbing ideas, we take the time to look behind the headlines and think carefully about all the implications of a policy proposal. I know that is exactly what my right hon. Friend the Chancellor is doing as he prepares his Budget, listening to ideas and weighing up their implications.

[Anthony Browne]

My hon. Friend is making a powerful and important speech. Does he agree that the reason why the Labour party is focusing on this issue so much in this debate and during Prime Minister’s questions is that, while we are the party of aspiration, Labour is the party of envy and is just trying to play class war?

[Rob Butler]

I have no alternative but to agree with my hon. Friend—otherwise, what on earth is the point of having this discussion? We believe in aspiring, striving and achieving and we then believe in paying our fair share of tax, which generates the public services that we value so highly.

As I was saying, the Chancellor is currently weighing up what are the best policies to stimulate growth. Of course that involves raising tax revenue, but we need to do so in a way that does not stifle the potential for economic growth in this country. There are plenty of people giving him advice on how to do that, including some of my constituents, and even me.

I believe that there are plenty of changes we could introduce. I would like us to look at the cap on private pensions; doing so would enable us to get more people in their 50s remaining in work or returning to the workforce. Some dub that current tax a doctor’s tax, because it creates a strong disincentive for doctors to work extra shifts—doctors, the very healthcare workers the Opposition are so keen that we should support. I agree that we should support them, so let us make a tax regime that creates the opportunity and potential for them to want to work more.

There are other taxes that also impede free markets—stamp duty land tax could be considered one of those—but this is not the place to consider the detail of all that. Nor is this the place for the publication of Treasury analysis on the effect of the abolition of non-dom tax status on public revenue, because of the time, just before a Budget, when the Labour party is suggesting it should be done. Let us instead focus on the real, pressing needs of our economy for our constituents: driving opportunities for growth, building a skilled workforce, creating jobs and so generating revenues that will support our public services for many decades to come.