Targeting non-doms was a cheap hit the Chancellor will regret
The ultra-wealthy may be an easy target, but the government is sending a signal that playing politics matters more to them than securing investment, says James Price
he temptation to play politics is often an irresistible one around fiscal events, and with the twin straitjackets of the Office for Budget Responsibility and a looming election, so it proved for the Chancellor last week. Abolishing the regime around ‘non-doms’ was designed to ‘shoot Labour’s fox’ to use the bizarrely anachronistic cliche that is trotted out whenever such a politically motivated policy is appropriated by one party against another.
It may be an effective way of reducing Labour’s political offering, but all it really amounts to is a cheap hit on an easy target. But it will likely backfire, sending a terrible signal to investors that political shenanigans are still more important to Britain’s leaders than securing them returns on their cash.
The ultra-wealthy are never going to be terribly sympathetic characters, but the individual, familial and business investments that they bring to the UK, and the wealth and jobs that they create, fund the schools and hospitals that politicians are so keen to talk about. Did anyone in the Treasury do a dynamic analysis on the impact of the hundreds of thousands of jobs created by foreign direct investment (FDI) over the years, or the scientific discoveries and innovations in our life sciences sector that were fuelled by it?
In recent years, the increase in corporation tax, flipflopping on our net zero timetable, and now ending non-dom status have added to a general sense that the UK is an unreliable and unattractive place to invest.
It’s time that politicians realise that neither wealthy non-doms, nor FDI more broadly, are cash cows that the Exchequer can forever rely on. The UK has slipped behind France in terms of FDI, and behind both France and Germany in EY’s latest investment attractiveness survey.
Fears that huge numbers of bankers and other professional service providers would flood to Frankfurt after Brexit fell down in part because London remains a much more appealing place to be. But with the city feeling less safe, less vibrant and more down at heel, we risk a truly toxic combination of push factors that will drive people away. Even seemingly small policies, like scrapping VAT-free shopping for tourists, is directly contributing to an outpouring of cash to Paris and Milan.
If Labour do win the next General Election, they will inherit a dramatically more challenging fiscal picture than the one they were bequeathed in 1997. Whatever they say now, their first instinct will be to revert to type, and look to tax our more productive industries. This will further stifle growth, harm the UK’s global competitiveness, and create a vicious cycle that will compound these problems.
All is not lost. The permanent adoption of full expensing, an idea popularised by think tanks like the Adam Smith Institute and the Centre for Policy Studies, shows that when properly argued for, investment can be promoted and lauded by government. And if the UK moves quickly, it can corner the market for a whole host of new technologies. We all know by now about the potential of artificial intelligence, but what about making the UK a real destination for clearing digital assets alongside traditional ones?
Making London the centre for the clearing of digital crypto assets would ingrain these products into the UK ecosystem and economy, ensuring that the UK becomes a real hub for institutional participation in crypto, in preference to the EU under its MiCA rules. There are so many opportunities like this that we could grasp if more ministers were like Bim Afolami and Saqib Bhatti and were willing to explain the wider benefits they would bring to the public, to the public.
We need politicians, business and City grandees to put their heads above the parapet and read from the gospel according to investment
James Price is director of government relations at the Adam Smith Institute