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Jeremy Hunt has drawn up emergency Budget plans to scrap or scale back Britain’s “non-dom” tax rules, in the event that he needs to raise billions of pounds to fund mass-market pre-election tax cuts.
The chancellor has a “secret project list” of potential revenue-raising measures for the exchequer, according to Treasury insiders, as he looks for ways to fund cuts to national insurance or income tax rates in next week’s Budget.
Axing the colonial-era non-domiciled tax regime would raise an estimated to £3.6bn a year. Hunt has previously criticised Labour’s plan to scale back the tax break.
Treasury insiders confirmed that Hunt was looking at the idea as one of a range of last minute revenue-raising options, but said the chancellor would only act if official forecasts deteriorated over the next few days and further limited his room for Budget tax cuts. The Treasury declined to comment.
The issue is politically charged: Labour leader Sir Keir Starmer has accused Prime Minister Rishi Sunak of clinging on to his “beloved non-dom status” — a reference to the fact his wife Akshata Murty previously benefited from the regime.
While the Treasury is accustomed to downplaying Budget expectations, including floating options that fail to materialise, Hunt’s flirtation with taking the axe to the non-dom system is a political gamble.
Government insiders insisted that Hunt would “not do anything that risks the City’s competitiveness”, but the fact he is considering the move has the potential to give Labour political cover for its own plan.
Jonathan Reynolds, shadow business secretary, this month told the FT that Labour would replace the existing non-dom system with a modern tax system designed for people genuinely living in the UK for a short period of time.
The current regime allows foreign domiciled nationals resident in Britain to earn money from capital abroad without paying UK tax on it for up to 15 years, provided they do not remit any income or capital gains back into the country. There were 68,800 non-doms in the UK in the tax year ending in 2022, according to HM Revenue & Customs.
Labour had originally suggested it would scrap the system completely. Party insiders said Labour would now look at a compromise four-year exemption, which could raise more than £2bn.
George Osborne, former Conservative chancellor under David Cameron’s government, said this week that if he were in government now he would look at whether to “steal Labour’s clothes” by scrapping the non-dom regime.
Doing so would put shadow chancellor Rachel Reeves in a difficult position, he said on a podcast he jointly hosts with former Labour shadow chancellor Ed Balls.
“If I was the chancellor I would definitely be looking to do something on the non-dom regime that hopefully didn’t kill the golden goose that lays the golden egg of having international visitors to Britain that invest in this country, but nevertheless takes money off the table and puts the ball back into Labour’s court,” Osborne said.
Balls said the question was why the Conservatives had not already implemented such a change, given the move would make it harder for Labour to point to extra revenue sources to fund the opposition party’s key policy promises.
Hunt’s dilemma ahead of the Budget is that he would like to cut national insurance rates by 2p — matching the 2p cut in NI rates in November’s Autumn Statement — but the move would cost about £10bn a year.
Treasury insiders said such a move was “impossible at the moment” because the most recent forecasts by the independent Office for Budget Responsibility have given Hunt very limited room for manoeuvre against his own fiscal rules.
The final forecast will arrive with Hunt on Friday, by which point all final Budget decisions have to be taken.
Hunt said in November 2022, shortly after becoming chancellor, that the Treasury had advised him that it was not “going to help the economy” to remove the non-dom tax rules.