Jeremy Hunt has prepared an emergency Budget plan to scrap or reduce Britain’s non-dom tax rules in the event he needed to raise billions to fund pre-election mass-market tax cuts.
Treasury insiders say the chancellor is working on a “secret list” of revenue-raising projects for the exchequer as he seeks ways to fund reductions in national insurance rates or income tax rates for next week’s budget.
The removal of the non-domiciled colonial tax regime could raise £3.6bn per year. Hunt has criticised Labour’s plan to reduce the tax break.
Treasury insiders confirmed Hunt had considered the idea, as part of a variety of last-minute options to raise revenue. However, they said that the chancellor wouldn’t act until official forecasts worsened in the coming days and limited his ability to make tax cuts for the Budget. The Treasury declined comment.
The issue is political: Labour leader Sir Keir Sunak has accused Prime Minister Rishi of clinging on to his “beloved status as a non-dom” — an allusion to the fact that his wife, Akshata, previously received benefits from the regime.
Hunt’s gamble to axe the non-dom is a political one. The Treasury is used to downplaying Budget Expectations, which includes floating options that don’t materialise.
Insiders within the government insisted that Hunt “would not do anything to risk the competitiveness of the City”, but his consideration of the move could give Labour political cover to its own plan.
This month, Jonathan Reynolds, the shadow business secretary , told the Financial Times that Labour would replace the non-dom system by a modern system for people who are living in the UK genuinely for a brief period of time.
The current tax regime allows British nationals with foreign domiciles to earn income from capital abroad and not pay UK taxes on it for 15 years if they don’t remit any capital gains or income back to the country. According to HM Revenue & Customs, there were 68.800 non-doms living in the UK during the tax year that ended in 2022.
Originally, Labour suggested that it would abolish the entire system. Labour insiders say the party is now considering a compromise exemption of four years, which would raise more than £2bn.
George Osborne said that if he was in the government today, he would “steal Labour’s clothes” and scrap the non-dom system.
He said that doing so would place former Labour shadow-chancellor Ed Balls and Rachel Reeves into a difficult situation.
Osborne stated that, “If I were the chancellor, I would look to do something about the non-dom system that didn’t kill off the golden goose which lays the golden eggs of international visitors who invest in Britain but nonetheless took money off the tables and put the ball back in Labour’s hands.”
Balls asked why the Conservatives hadn’t already made such a change. This would make it more difficult for Labour to cite additional revenue sources as a way to fund their critical policy promises.
Hunt faces a dilemma before the Budget. He would like to reduce national insurance rates by two pence, matching the reduction of two pence in the Autumn Statement from November. However, the move would cost around £10bn per year.
Treasury insiders stated that such a move is “impossible for the moment”, because the Office for Budget Responsibility’s most recent predictions have left Hunt with very little room to manoeuvre in relation to his own fiscal rules.
Hunt will deliver the final forecast on Friday. By then, all Budget decisions must be made.
Hunt stated in November 2022 that shortly after becoming the chancellor, the Treasury informed him that removing the non-domiciliation tax rules would not “help the economy”.