Rachel Reeves is reassessing certain aspects of Labour’s initiative to address non-dom tax status due to apprehensions regarding the potential revenue generation of the proposed measures.
The chancellor is conducting a thorough evaluation of the government’s commitment to address the loopholes present in the non-domiciled tax framework.
Treasury officials expressed concern that the spending watchdog was likely to determine that the policy would not generate any revenue, primarily due to the effects of ultra-wealthy non-domiciles exiting the UK.
Reeves is currently reassessing the plans, as indicated by recent reports. A government official stated to the Financial Times: “We are currently analysing the specifics of our proposals.” Our approach will prioritise practicality over ideology. We will not proceed without consideration, but we will not entirely forsake this initiative.
Following the Conservatives’ unanticipated declaration regarding the gradual elimination of the non-dom regime, Labour expressed its expectation to generate an additional £2.6 billion throughout the parliamentary term by tightening regulations on existing loopholes.
The party subsequently forecasted that addressing these loopholes could generate an initial £1bn in the first year, which would be allocated to support universal school breakfast programs and increase hospital and dental appointment availability.
There are apprehensions within the Treasury regarding the potential assessment by the Office for Budget Responsibility (OBR), which may determine that the proposed plans will generate no revenue and could incentivise affluent foreigners to exit the UK.
Andy Haldane, previously the chief economist at the Bank of England, indicated earlier this week that there should be a “cause for pause” regarding the government’s plan.
The OBR initially projected that eliminating the tax incentive for affluent foreigners might generate approximately £3.2 billion annually; however, this estimate was classified as “highly uncertain” due to the potential for wealthy individuals to either exit the UK or devise strategies to circumvent the stricter tax regulations.
A spokesperson from the Treasury stated: “These reports represent speculation rather than established government policy.” The independent Office for Budget Responsibility will validate the financial estimates of all initiatives presented in the budget as per standard procedure.
“Our objective is to rectify inequities within the tax framework to enhance revenue generation for the revitalisation of public services.” The outdated non-dom tax regime is being eliminated and replaced with a new residence-based regime designed to enhance the UK’s competitiveness in attracting top talent and investment.
In anticipation of the budget scheduled for 30 October, Reeves is evaluating a potential modification in the methodology for calculating the government’s fiscal rules, which could facilitate an increase of billions of pounds in capital expenditure.
The chancellor addressed Labour’s annual conference in Liverpool, expressing her belief that the Treasury has consistently underestimated the value of public investment and indicating a desire to shift the perception of public spending at the highest levels of government.
The framework has faced extensive scrutiny from economists due to its tendency to discourage governments from pursuing long-term investments that have the potential to foster economic growth.
The Times reported that Reeves aims to allocate up to £50bn for infrastructure projects through proposed regulatory changes being developed by officials.
Government officials are considering a revision in the methodology for measuring national debt. This adjustment may enable the government to account for “assets,” including the £236 billion in student loans, when calculating the overall national debt, according to sources within the government. This would allocate additional funds for investment in projects like infrastructure, housing, and energy, while not impacting operational expenditures.