MPs reject calls for analysis of impact of scrapping non-dom status to be made public

As part of its Opposition Day (when opposition parties get to set the parliamentary agenda), Labour called for the Treasury analysis, ordered by Chancellor Jeremy Hunt in November, to be presented to MPs by the end of February.

Non-dom status allows UK residents whose permanent homes are abroad to avoid paying British taxes on overseas income. Labour has vowed to replace the current rules with a shorter-term scheme for temporary residents if it comes in to power.

Opening the House of Commons debate on Tuesday (31 January), Shadow Financial Secretary to the Treasury James Murray said the “200-year-old loophole” of non-dom status costs the public purse £3.2 billion a year and “fails to support economic growth”. He said a Labour Government would replace it with a “modern scheme”, adding: “We believe that abolishing this tax loophole should be common sense and that using that money to invest in the NHS and childcare should make it a no-brainer.”

Speaking for the Government, Financial Secretary Victoria Atkins rejected calls to make the analysis public, saying that ministers need a “safe space” to examine policy changes and that “should not play out in public”.

However, she made several references to the upcoming Budget in March, possibly hinting that an announcement on the issue may be made then. She said: “We understand the legitimate concerns of people across the country. The country has a strong instinct for fairness, and we want all people to pay their fair share of tax.”

The Financial Secretary said non-doms already bring in “a very large sum of money”, and that in recent years the Government has reformed rules to end permanent non-dom status and close a capital gains tax loophole, bringing in almost £4 billion extra per year.

Most Conservative MPs defended the existence of non-dom status but Nigel Mills said he supports ending it in its current form. “I do not think people can make a coherent case for the rules as they stand,” he told the House. “The idea that where my father was born should define my tax treatment is clearly nonsensical and we need to find a more modern way.”

The former tax adviser highlighted the difficulty of navigating terms such as “ordinary residents”, “deemed domicile”, and “habitual residents” in the current rules, adding that the UK’s exit from the EU provided an opportunity to revisit the scheme.

He said: “It would make sense to step back and have a full review of what we are trying to do in this policy area, what we are trying to tax and what we are not trying to tax, so we could have coherent policies and a new law that people could understand—both those here and those coming here.

“We absolutely need to have temporary resident’s relief, whereby, if you come here for a short time, you pay tax on what you earn here and on the assets you have here, but you do not pay tax on whatever you have earned already abroad and you never bring here and never will. I think that would be too strong a deterrent for people to come here.”

Fellow Conservative Rob Butler agreed that there is “scope for further reform”, but that should be considered “calmly and rationally”.

Another Conservative, Anthony Browne, said analysis of non-dom status under previous Labour governments found that the benefits “were greater than the cost”, and if it were to be abolished, “precise data” would be needed to “create the optimum scheme” to replace it.

He said: “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.”

He questioned whether Labour would actually abolish non-dom status. “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,” he said.

His Conservative colleague Aaron Bell observed that former Labour Prime Minister Gordon Brown, Chancellor Alistair Darling and Shadow Chancellor Ed Balls all rejected abolishing the status when in office, believing that doing so would discourage investment in the UK. He said: “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.”

Former Attorney General Michael Ellis agreed, saying: “Something is better than nothing: make business go elsewhere and the whole UK economy will suffer.”

For the SNP, newly appointed Treasury spokesperson Stewart Hosie supported abolishing non-dom status. He noted that research and analysis from the last 15 years has resulted in a range of figures for how much this would raise in public finances, from as much as £4 billion to less than £1 billion, but, he thought, whatever the yield, "finally abolishing non-dom status is simply the right thing to do, particularly for those people who for all intents and purposes permanently reside here.”

Labour MPs also rowed in behind their frontbench in arguing for non-dom status to go. Naz Shah said claims that abolishing the status would deter investment in the UK were “simply not true”, and that other countries “that attract business, investment and entrepreneurship”, including the USA, Canada and Germany, require people to pay tax after six months or, in the USA’s case, just one day.

Kerry McCarthy agreed that abolishing non-dom status “would simply bring us into line with major economies, including France, Germany and Canada”. She said those benefiting from the tax breaks are estimated to have almost £11 billion a year in unreported income and capital gains overseas, and that “no-one would propose this non-dom policy now if it did not already exist”.

Marie Rimmer said a survey carried out by the London School of Economics suggested just 0.3% of those that would be affected by the abolition of the status would leave the UK as a result. She said non-dom status is not the main driver for their residence in the UK but is used because it is “readily available”. She added: “The reality is that they enjoy living here in Britain. Britain is their home.”

Winding up the debate for Labour, Shadow Exchequer Secretary Abena Oppong-Asare highlighted a forecast from the International Monetary Fund that the UK will be the only major economy to shrink this year and called for non-dom status to be abolished to raise more for the public purse. She said the current scheme, which she branded as “out-of-date”, “allows the wealthy few to avoid following the normal rules and requirements”. She added: “As a modern economy, Britain should operate with modern principles in line with other major economies such as France, Germany and Canada.”

Responding for the Government, Economic Secretary to the Treasury Andrew Griffith said policies should “make sure that our economy is fertile for growth”, rather than focusing on what is “politically expedient”. He said 35 other countries have schemes similar to the UK, while calling for analysis to be made public less than two months ahead of the Budget was “unconstitutional, irregular and injurious to the public interest”.

He said: “Disregarding established precedents while prejudicing the process of consideration would not be in the public interest, especially when we have just weeks to wait until the fiscal event.”

The motion was defeated by 305 votes to 229. Read the full debate.