Abolition of non-dom status: more politics than economics?

First, non-dom status explained: super-rich people can pay less tax than poor people by claiming they don’t really live here. That’s it. When you think about it, it’s a clear anomaly.

So why haven’t cash-hungry Chancellors in times past closed the loophole? And why, even now, does Labour seem to be blurring its move to abolish non-dom status at the edges?

It goes to the heart of something unique in British culture: the question about whether super-rich people should enjoy a whole set of rules different even to quite rich, or even just comfortable middle class people.

So, for example, HSBC boss Stewart Gulliver (pictured above) despite living in Britain for 10 years, was able to claim he was really “domiciled” in Hong Kong, gaining significant tax advantages over, presumably, other HSBC employees who could not claim this.

The amount of tax raised by the new measure – if applied to all 113,000 people registered as non-dom – will not be large. £1.3bn says the tax lawyer quoted by Ed Balls this morning.

That is because the rules have been tightened already, and the super-rich have found other ways, and places, to keep their money.

The argument against ending non-dom status has always been that it would drive talented rich people offshore, and – as the Conservatives claimed today – destroy jobs.

If Labour is serious about this, and wins the election, we may get to find out.

Or not. Because one of the great things about the UK tax system is its anonymity. We, the people, grant non-dom status to 113,000 of our fellow Brits who live here, but we never get to find out who they are.

There is no public list of them: so it’s impossible to judge whether the £1.3bn extra tax collected is worth it, as against the lost jobs in the chauffering, grouse shooting and luxury car showroom trades.

But supporters of the move say it’s not about money raised: it’s about the perception of fairness.

Indeed, having sprung it on the electorate with less than 30 days to go, having refused to abolish non-dom status for 13 years in office, critics will say Labour’s move is about perception full stop.

Labour’s strategists know almost the only thing that is playing well for them on the doorstep is the perception that the Conservatives represent unaccountable wealth – hedge funds, non doms and the like.

But looking forward, all the treasuries of the world face the same problem: the super-rich earn money from asset wealth, which is not easily taxed, wherever it sits – and it usually sits offshore.

If they don’t move from taxing income to taxing wealth over the next 50 years, says the OECD, there’s a risk that, with the pressure of ageing populations, the tax base no longer matches even the most meagre of state service provision.

Taxing wealth means taxing individuals, and that means individuals have to officially live in a specified country. Until now Britain has been the only developed country in the world where you can officially live somewhere and yet not live there at the same time.

Beyond all the political sparring today, the Conservatives’ willingness to tighten the non-dom rules and the wider clamp down on tax havens probably means the loophole’s days are numbered anyway.

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