Not since Ed Miliband pledged to freeze energy prices in his 2013 Labour conference speech have the Tories been as bamboozled by a policy as they have by his promise to abolish non-dom tax status. George Osborne led the Conservative response this morning, warning both that the move could “cost our country hundreds of millions of pounds in lost tax revenues and lost investment” (by deterring wealthy individuals who will now be required to pay tax on their overseas earnings) and that it could be “just tinkering around the edges”. Unable to settle on a line of attack, the Chancellor opted for confusion: the measure can’t be both punitive and “tinkering”.
The Tories were later jubilant when they unearthed footage of Ed Balls warning in January that the full abolition of the non-dom rule would likely end “up costing Britain money because there’ll be some people who leave the country” (appearing to vindicate Osborne’s first attack). But as Balls himself has pointed out in a rebuttal on his website, the video was edited to exclude his declaration that “I think we can be tougher and we should be and we will”. Labour’s policy, which makes allowance for genuine temporary residents (such as university students), is consistent with his words. As Miliband said in his speech: “Real temporary residents, here for a brief period, will only have to pay tax on what they earn here. Because they will be paying their taxes in their place of permanent residence.”
The essential point remains that he has pledged to abolish the 216-year-old rule that allows typically wealthy individuals to avoid tax on their overseas earnings – even if they are permanently resident in the UK (an anomaly unique to this country). When the news was announced last night, the Tories, as I noted, had a choice: they could try and kill the policy or they could steal it. In choosing the former option, they have made a serious political error. Rather than engaging with the pedantic debate over whether Labour is truly “abolishing” non-dom status, most voters will see the Conservatives again defending the super rich. For a party whose biggest problem is its reputation as the political wing of the City of London, this is not a good look. The Tories are now protesting that up to 60 per cent of non-doms could be unaffected by Labour’s policy (since they are resident for less than five years). But even if true, is it really wise for them to side with the 40 per cent who would be?
The smart move for the Tories to make would have been to simply accept Labour’s policy and claim credit for first proposing a small levy on non-doms (as Osborne did in his 2007 conference speech). That would have immediately taken the wind out of Miliband’s sails (as David Cameron did when he pledged not to increase VAT at the final PMQs). By instead forming a front against Labour’s progressive move, they have guaranteed political defeat.
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