It was going to pay for universal breakfast clubs in schools, for better hospitals, and more dental treatment on the NHS.
In the run-up to the election campaign, we heard a great deal from the Labour Party about all the extra services that would be paid for with its clampdown on “non-doms”, the small group of wealthy foreigners who pay less tax than the rest of us.
And yet, we have now learnt that Treasury officials are warning that the extra tax, far from raising more cash, will actually cost money instead. In reality, the Government is on a very steep learning curve, and it is about to discover that class war, and punishing taxes, don’t work.
Its non-dom policy may appear a small tweak, but it’s turning into a catastrophe for the British economy – and one that will leave us all worse off.
It would be hard to think of a more spectacular own-goal, so early into the life of a new Government. A clampdown on non-doms was a centrepiece of Labour’s campaign for power, with every shadow minister promising an endless series of freebies that would be seemingly paid for with extra taxes on UK residents whose permanent homes are overseas.
The former chancellor Jeremy Hunt was nudged into tougher non-dom rules, at which point Rachel Reeves immediately doubled down, pledging even higher taxes on foreigners who choose to live and work in Britain. One way or another, she was determined to get her hands on their money.
And yet, according to reports this week, officials are already warning that it will not work out as planned. The Office for Budget Responsibility (OBR) originally forecast that scrapping the tax break for wealthy foreigners could raise about £3.2bn a year, although the fiscal watchdog also warned that figure was “highly uncertain”.
It now appears likely that the OBR will update its predictions to say that the clampdown might actually cost £1bn or more in lost revenues.
Well, gosh. That’s a surprise. It turns out that wealthy Indians, Chinese or Americans don’t actually want to pay higher taxes in the UK. We have plenty of anecdotal evidence from accountants and lawyers that they are already moving elsewhere. After all, by definition these are some of the most mobile people in the world.
When it updates its forecasts ahead of the Budget, the OBR may well make that official. There will be an even bigger “black hole” in the public finances, presumably to be paid for with yet another raid on pensioners.
If they wanted to, Reeves, the Chancellor, and Sir Keir Starmer, the Prime Minister, could learn the lessons from that. Such as? Well, to start with, pushing up taxes can often drive down the amount of revenue the Government collects.
We are about to see that with non-doms, and there are already signs that the imposition of VAT on school fees – which was also meant to bring in lots of extra cash – may backfire as well, as many of them are forced to close down.
Very soon we will see it with the big rise in capital gains tax that Reeves is said to be plotting, which will force most business owners either to postpone a sale, or else to move elsewhere. We will also see it with the windfall taxes on oil and gas explorers that are forcing them to abandon the North Sea.
Next, mobile individuals can and will move, and so will companies. The Left complacently assumes that there are no limits to who can be taxed, and by how much. They might grumble, but in the end they will always pay up. The non-doms will stay where they are, so will the entrepreneurs, the energy companies, and the buy-to-let landlords.
It is not true. In the same way that France’s last Socialist president, François Hollande, demonstrated with his 75pc super-tax, which prompted an exodus of the better-off, we are about to provide the economics textbooks some real-world evidence of what happens when you increase taxes too much.
Finally, the UK should be throwing open its doors to the world’s wealthy. Over the last couple of years, lots of other countries have welcomed the world’s entrepreneurs with digital nomad visas, start-up concessions and capped tax rates. Portugal, Italy and Greece all have deals available for anyone with significant assets who wants to move there, and many more countries will join them.
The UK, with its vibrant cultural life, trusted legal system and wealth of financial and consulting advice could easily be winning this global race, attracting talent and money from around the globe. Instead, we are making ourselves dramatically less attractive at a time when our rivals are becoming more so.
True, the chances of Reeves learning any of those lessons is probably about as high as her refusing a new handbag, or her colleagues some concert tickets. Even so, the evidence may soon be as clear as day.
The non-dom clampdown will be a catastrophe that, far from allowing extra spending, will mean Reeves has to raise other taxes even more, or else borrow the money instead.
The blunt truth is this. The new Labour administration may talk about fiscal responsibility, and lifting growth. But it is a government driven by an ideological class war on wealth and success. It is more interested in punishing the rich than raising revenues. It is small-minded, petty and counterproductive – and it will leave us all poorer.
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