11 February 2008

FT: Cameron pressed on tax plan for non-doms

David Cameron is under pressure from City supporters and rightwing MPs to rethink plans to tax non-doms, amid growing concern that the Conservatives are failing to hold the government to account on the issue.

In stark contrast to the furore over capital gains tax, in which the Tories vociferously backed business protests, the party has been conspicuous by its absence from the dispute over non-doms.

The government's proposal for a £30,000 levy came within weeks of a Conservative plan for a £25,000 fee. Industry groups fear Mr Cameron is holding back from criticising the Treasury move for fear any attack would be seen as an implicit admission of flaws in the Tory proposal.

"It's a bizarre game of cat and mouse," said an industry group. Another lobbyist said: "If the Tories stand up and say, 'This is silly', ministers will counter, 'But it's your idea'."

A senior Tory backbencher has broken ranks, with an implicit criticism of his party's proposals. Michael Fallon, a Thatcherite member of the Treasury select committee, said: "Chasing non-doms out of London is a huge mistake . . . Why do we want to lose all that business to Luxembourg or Dublin or Geneva?"

The political and City lobbying against the non-dom changes has been relatively slow to gather force, in comparison with the immediate backlash on CGT, which forced a partial retreat from Alistair Darling.

The big question now for business is whether the chancellor can also be persuaded to offer concessions on non-doms. The willingness of bodies such as the US embassy to go public with their concerns, allied to the growing protest from the City, must increase the chances the Treasury will give some ground.

The Tories defended their policy last night. "Our proposals were broadly well received by the City as striking the right balance between fairness and competitiveness. Above all, we offered certainty and avoided the kind of intrusion that might drive people away," Philip Hammond, shadow chief secretary to the Treasury, told the FT. "We will continue to scrutinise the government's proposals to ensure that that balance is not undermined."

Vince Cable, the Liberal Democrats' deputy leader, said: "It's just the CGT situation all over again. It was a reflex action [to the Tory plan], badly thought out and it's doing them a lot of damage . . . it's landed them in deep doo doo, as with CGT."

The Lib Dems are the only opposition party to openly criticise the Treasury's approach.

© Financial Times