07 February 2008

FT: Minister warns on non-doms tax purge

Digby Jones, the trade and investment minister has warned that plans for a tax crackdown on non-domiciled foreigners living in the UK threaten London’s role as a world finance centre. The former CBI director-general broke ranks with the official government line in a candid interview with the Financial Times.

Lord Jones said the tax changes made it harder for him to sell Britain as a destination for skilled foreign workers and inward investment. The minister, who said he was not consulted on the change, added: “I can give you five reasons as to why you should invest in Britain before you go and invest anywhere else in Europe. But maybe there were seven and now there are five.”

He admitted that a lot of people from the City had told him it was a serious issue for the financial services industry. Lord Jones had been frequently asked about the tax changes on trips to India and the Gulf. He feared they had reduced the attractions of Britain as a destination for skilled people.

“It has caused people to say ‘Does this mean you don’t want us?’,” he said, adding that there was a danger such changes meant the UK would lose its “badge as the place to come and bring your skill and work hard in the developed world“.

“I don’t want to be in the position where one morning we wake up and people are saying ‘Digby: no matter how good you are at doing what you do, the product isn’t as good as it was’.”

His warning follows intensive lobbying by the City, which is concerned that overseas investors and executives will pull out of the UK if Alistair Darling, the chancellor, goes ahead with the crackdown. The Treasury is consulting on proposals to raise an extra £650m a year by charging foreigners living in Britain for more than seven years £30,000 annually if they wish to keep their foreign income out of the UK tax net.

Wealthy individuals would also be hit by the closure of loopholes that allowed them to escape tax on UK assets held in offshore trusts. Lord Jones said the fact that the £30,000 would kick in only after seven years meant the UK would remain appealing to many young people from abroad who wanted to spend time in the UK.

He said paying £30,000 to keep non-UK income out of the UK tax net might look fair to many people. But non-doms were also worried about the possibility of greater intrusion into their affairs by the tax authorities. “It’s also a ‘How much do you want to know about me?’ bit, as well as the £30,000,” he said.

“We’ve got to get the message across to these people that it’s seven years before this begins to bite.”

David Lewis, Lord Mayor of London, told the chancellor this week that he had found real anxiety over the proposed changes in many meetings with the financial community. He said: “Many people cannot understand why we are risking the loss of so many talented people from the UK who produce so much business for the UK and so much tax for the Treasury and employ large numbers of staff here, for the sake of the possibility of a relatively paltry tax receipt by the Treasury that it will probably never actually receive.”

Lord Jones, one of several non-political ministerial appointments made by Gordon Brown when he became prime minister, said he had not been consulted on the proposals before they were announced in October’s pre-Budget statement. He had relayed what inward investors and businesses were saying to the prime minister and the chancellor.

© Financial Times