– in the House of Commons at 4:23 pm on 31st January 2023.
I remind everybody here that, if you participate in this second Opposition Day debate, you will be expected to turn up for the wind-ups.
I beg to move,
That there be laid before this House, no later than
The loophole allows a small group of high-income people who live in the UK to avoid paying tax on their overseas income for up to 15 years. It is a status that can be passed down through people’s fathers. It costs the public finances £3.2 billion a year and it fails to support economic growth in the UK. It is a 200-year-old loophole that should have no place in our modern tax system.
If it is such a long-standing loophole, as the hon. Gentleman describes it, why have successive Labour Governments not abolished it?
We are debating the importance of a fair tax system for the future of this country. This Government have sat on non-dom tax status for months and years. We are questioning why this Prime Minister is not heeding Labour’s calls to abolish the non-dom tax status once and for all, and spend the money on the NHS, childcare and a growing economy.
When the Government are making working people pay more tax, it is simply wrong to allow wealthy people with overseas incomes to continue to benefit from an outdated tax break. It is also bad for UK business. The loophole prevents non-doms from being able to invest their foreign income in the UK, as bringing it here means that it becomes liable for UK tax. That is why the shadow Chancellor, my right hon. Friend Rachel Reeves, first set out our party’s position last April—four Conservative Chancellors ago. She confirmed that, in government, Labour would abolish the non-dom status as part of our reforms to create a fairer tax system for working people. We will abolish that indefensible 200-year-old tax loophole and introduce a modern scheme for people who are genuinely living in the UK for short periods.
Labour believes that, if a person makes Britain their home, they should pay their taxes here. That patriotic point should be accepted on all sides of the political divide, yet Ministers in this Government, under this Prime Minister, seem desperate to defend the non-dom loophole. What is it about the current Prime Minister that makes him so reluctant to abolish non-dom tax status? The Government are increasing taxes on working people, businesses are struggling, and our NHS is in crisis. Yet the Conservatives defend a small number of rich people who use non-dom tax status and offshore trusts to wriggle out of paying taxes here in Britain.
We know that the Prime Minister understands how non-dom tax status works—he can hardly claim ignorance on that—so how can he possibly justify it? How do Conservative MPs look their constituents in the eye and tell them that their taxes will keep going up, while the taxes of non-doms must always stay down? It is indefensible, and that is why the next Labour Government will act by abolishing the non-dom tax status.
The hon. Member asks what makes this current Prime Minister reluctant to change non-dom tax status, but what made Tony Blair and Gordon Brown, the former Labour Prime Ministers, also very reluctant to scrap the non-dom tax status? They both reviewed it and both kept it.
We were not increasing taxes on working people when we were in government. The hon. Gentleman can start looking at the record 13 years ago, but it is high time that Members on the Government Benches took responsibility for what they have done in government—for the low growth, for the high taxes on working people and for the fact that our public services are crumbling.
On that point, to recall what happened in 2010, one of the first things that the incoming Conservative coalition Government did was to increase VAT from 15% to 20%. Who did that hurt?
As my hon. Friend reminds us, increasing taxes on working people has long been a hallmark of the Conservatives. That has led us to a situation where we have the highest tax burden on working people in more than 70 years.
No, I will make some progress. Our position contrasts with that of the current Government, whose Ministers have been at pains over the past year to protect this unfair loophole. When the Chancellor told the Treasury Committee last November that he wants
“to make sure that wealthy foreigners pay as much tax in this country as possible”, his words could not have rung more hollow. They rang almost as hollow as the Prime Minister’s promise when he took office that he would run a Government of “integrity, professionalism and accountability.” The truth is that the Prime Minister is running a Government without even basic competence and it is hitting people across this country.
It is reported today that Infosys, the Indian-based IT firm, which holds several contracts with public services here, is in a £20 million dispute with His Majesty’s Revenue and Customs. Whether it is through non-dom status or something else, it costs our country dearly when there are tax avoiders. Does my hon. Friend not agree? I am sure that the Prime Minister knows that company very well.
I thank my hon. Friend for drawing attention to the impact that tax avoidance has on the public purse and on people across this country and to the fact that the Prime Minister probably understands some of these issues very well indeed.
As my hon. Friend set out, people are feeling the impact on this country’s economic growth as we lag so far behind other countries around the world. People are feeling the impact of so many parts of our public services breaking at the seams, and people are feeling the impact as the big challenges of the future get kicked ever further into the long grass.
We need a Government with a plan to grow the economy, with the drive to get ahead of the challenges of the future and with the determination to reform and strengthen our public services. Nowhere is that clearer than with the NHS, as more than 7 million people wait months and even years for treatment, unable to work or to live their lives to the full. We know that, to make the NHS fit for the future and able to support a healthy society and economy, it desperately needs reform and sustainable funding from a growing economy.
The hon. Gentleman is making a typical, anti-aspirational socialist rant straight out of the book called “Politics of Envy”, but he is not actually speaking to the motion on the Order Paper. Why has he put “
It would only be a Conservative MP who could criticise an Opposition shadow Minister for suggesting that people should pay their fair share of tax.
I was speaking about the NHS, so let us look at the Government record on the NHS and see what can be done. We know that, after 1997, Labour’s reforms and funding from a growing economy meant that our country had an NHS of which we were proud. If we win the next general election, as my hon. Friend Wes Streeting the shadow Health Secretary has set out, one of the first steps we will take to get the NHS back on track is to use some of the money raised by scrapping non-dom status to implement a workforce plan that addresses the root cause of the crisis the NHS is in. Under our plan, we would double the number of medical school places to 15,000 a year. We would double the number of district nurses qualifying each year. We would train 5,000 new health visitors a year. We would create 10,000 more nursing and midwifery clinical placements each year.
On a point of order, Mr Deputy Speaker. Is it in order for the Opposition spokesman to be talking in such general terms about a wide range of things, without actually addressing the motion on the Order Paper?
Thank you, Mr Deputy Speaker, for the opportunity to set out the details of the kind of long-term workforce plan that we believe the NHS needs.
The NHS is one of the great challenges we face, but we know another challenge that parents and children across the country face: the desperate need for a modern childcare system. We need a system that supports families from the end of parental leave to the end of primary school, as the shadow Education Secretary, my hon. Friend Bridget Phillipson, has set out. As the first step in this landmark shift, we would use revenue from abolishing non-dom tax status to guarantee breakfast clubs for every primary age child in England. Too many families cannot afford the clubs before school that boost children’s learning and development and help parents to go to work. Labour’s plan would save families money as well as help parents to work the jobs and hours they choose.
Our plan to abolish non-dom status, replace it with a modern system and use the money raised to strengthen the NHS, childcare and the economy should be a no-brainer. Yet the Conservatives refuse to do it. We want to know why. This is not the first time I have asked Ministers to explain their position. In the last few months of last year, I asked Treasury Ministers five times to explain why the Government have been so reluctant to abolish this outdated tax loophole. I asked Ministers five times whether the Chancellor considered abolishing non-dom tax status, whether the Prime Minister was consulted about doing so and whether, when the current Prime Minister was Chancellor, he recused himself from discussions on the matter.
Five times I asked those questions; five times the Ministers refused to answer or even acknowledge them. Instead, Ministers have been determined to defend non-dom status. I suspect we will hear some of those same defences today. If previous debates are any guide, the Minister may well repeat her line that we should be grateful to non-doms for paying £7.9 billion in UK taxes last year.
On a point of order, Mr Deputy Speaker. If I am going to be quoted, I expect to be quoted correctly. The hon. Gentleman seems to use words I am not sure he quite understands—I do not know. In my speech, I am going to help him to understand some of the words he has used. But I have only ever sought to set out the facts, which we have to take into account on the issue under discussion, which is that they do pay £7.9 billion in tax. That is the context in which I have cited that figure, not in the way that he has alleged.
I am not sure I want to respond to that. The Minister has made her point. No doubt she will have a further chance in a few moments to set out those points again. She confirmed, in fact, that she is seeking to use as a defence for non-dom tax status the fact that non-doms paid £7.9 billion in UK taxes last year. Of course that argument entirely misses the point. We are talking about the £3.2 billion of tax that non-doms do not pay each year in this country.
Without wanting to forecast what might come in a few minutes, I suspect the Minister might also recycle her line that non-doms have invested £6 billion in investment schemes since 2012. But, of course, that ignores the fact that only 1% of non-doms invest their overseas income in the UK in any given year, and that non-dom status actively discourages people from bringing money into the UK to invest. Finally, the Minister may try to win praise for the Government having stopped non-dom status being permanent, but I suspect she will neglect to mention the fact that the Government have created a brand-new loophole that allows people to use offshore trusts to retain non-dom benefits permanently.
To be fair, while Treasury Ministers have come to the Dispatch Box time and again to defend non-dom tax status, the Chancellor did at least confirm to the House of Commons Treasury Committee on
“I want to make sure that anything you do in terms of the non-dom tax regime does not mean you lose more than you gain.”
We already have clear, well-evidenced work from the London School of Economics and Warwick University—respected academic institutions, using HMRC data—which confirms that non-dom tax status costs the public finances £3.2 billion a year, even after any behavioural effects are taken into account. If the Chancellor is determined to ask his officials to confirm that figure, presumably using the same HMRC data as the LSE and Warwick University, we want to see him doing so as quickly as possible, and we want to see the result. That is why we have tabled today’s Humble Address.
We believe that non-dom tax status should be abolished, but that is not what we will be voting to make happen today. All we are voting for today is to make sure that, by the end of next month, the analysis the Chancellor referred to at the Treasury Committee on
I would hope that a Government supposedly committed to integrity, professionalism and accountability would feel obliged to accept that request. If not, the question will surely arise, what have they got to hide? What is it they are so keen to keep out of the public domain? What questions or conclusions are they so desperate to avoid? Our motion would simply make sure that any information the Chancellor has been considering in relation to the non-dom tax status would be made public ahead of the spring Budget in March 2023.
We know what happened at the last fiscal event, the autumn statement in November 2022. The decisions taken by the Chancellor at that time hit working people by forcing through a council tax rise and extending freezes in thresholds for income tax and national insurance contributions. Those freezes in tax thresholds will, over time, cost the average household more than £1,000 a year, and yet, at the same time as announcing those tax rises on working people last November, the Chancellor was silent on non-doms. That is what it looks like when working people are forced to pay for this Government’s failure.
Time and again, the Conservatives have chosen to put the burden of tax on to working people, rather than asking those with the broadest shoulders to pay their fair share. If working people are being asked to pay more tax, it is simply wrong to allow well-off people to continue to benefit from an outdated tax break on their overseas income. The truth is that Labour wants lower taxes for people who keep the country moving. The Tories want lower taxes for people who move their tax status overseas. We believe that if a person makes Britain their home, they should pay their taxes here. We believe that abolishing this tax loophole should be common sense and that using that money to invest in the NHS and childcare should make it a no-brainer. We will be voting today to make this Government finally come clean about why they are so reluctant to do the right thing.
If the House will allow me, I would like to take a moment to mark the 70th anniversary of the east coast tidal surge, which saw 307 lives lost in England, including 43 people in Lincolnshire. Sutton-on-Sea in my constituency was one of the worst affected areas, and this morning constituents and Lincolnshire residents came together on the coastline to mark this terrible day in our nation’s history. Sadly, I could not be with them, but I want to place on record that my thoughts are with them on this difficult anniversary.
The Government have five priorities, as set out by the Prime Minister. First, we will halve inflation to give respite to business and reprieve to families living under the pressure of rising prices. Secondly, we will grow the economy to create better paid jobs and opportunities across the country. Thirdly, we will ensure that our national debt is falling, so that we can secure the future of public services. Fourthly, we will cut NHS waiting lists, so that people can get the care they need more quickly. Fifthly, we will pass new laws to stop small boats. To reflect the people’s priorities, three of our priorities are economic. They are a plan for a bright future where our economy is growing faster and where people across the country have opportunities for good jobs and for their pay to go further.
The autumn statement laid out our plan to achieve that future and, despite the difficult fiscal decisions we had to make, re-emphasised our support for the most vulnerable. Having helped households throughout the pandemic, we have set up new schemes to help people and businesses with rising energy bills, and we have taken targeted action on the cost of living. We have raised pensions, benefits and the national living wage to help those who might otherwise have been left behind. Those who ask where the burden falls in paying for that support should look at the measures in the autumn statement, which, as a whole, show that we have asked wealthier people to pay more. We have asked those with the broadest shoulders to carry the heaviest burden.
Today is not only the deadline for self-assessments, but, interestingly, the third anniversary of the Conservatives keeping our promise to the British people by honouring the result of the referendum and leaving the European Union. It is therefore ironic that Labour has chosen to table this type of motion today, because it was a parliamentary device that the Leader of the Opposition fell on when he was the shadow Brexit Minister and self-identified as a Corbynite. Labour used this sort of motion to try to block Brexit, but it did not work then and it will not work now to stop the Government’s responsible handling of the economy.
The flaws in the motion are fundamental, because long-standing and crucial conventions exist that Ministers should be able to receive free and frank advice from officials. In developing policy, Ministers must have a safe space to be advised by officials. That process should not play out in public, especially given that Treasury Ministers are often dealing with issues that are highly market sensitive. Those conventions apply to Governments of all political colours. If we were to make changes to any aspect of the tax system, the right and proper place to publish related costings and assessments is at the relevant fiscal event.
Having dealt with the motion’s flawed framework, I will say that we understand the legitimate concerns of people across the country. The country has a strong instinct for fairness, and we want all people to pay their fair share of tax. As the Minister responsible for the tax system, I feel that keenly, because I know that many people across the country are under pressure at the same time as we need to fund our public services properly.
At its heart, the motion is about laying before the House the evidence and analysis undertaken by the Treasury. On the point about fairness, I am sure the British public will want to hear the answer to my simple question about the 28,000 people who are non-domiciled in this country. What is the average length of time that they have been in this country? What is the longest and what is the shortest?
I am genuinely grateful to the hon. Gentleman, because that helps me to set out the progress that has been made in that area in the last decade. Non-domicile tax contributions rightly play an important part in funding our public services. Non-doms pay UK tax on their UK income and gains, and they pay UK tax on foreign income and gains when those amounts are brought into the UK.
I know James Murray dismisses £7.9 billion out of hand, as though it is somehow not relevant, but I set out these facts precisely because that is a very large sum of money and it helps to fund public services. It is right, in having a reasoned debate about these measures, that we adhere to the facts.
I have a rather technical question about the remittance basis charge. Would His Majesty’s Government consider raising the lower rate from £30,000 to £60,000 and perhaps the upper rate from £60,000 to £90,000? It would make better the balance between taking in revenue and the non-doms paying their share. Furthermore, following on from that, would they index link the charges to inflation in following years?
I am very grateful to the hon. Gentleman for that thoughtful contribution. I hope he will understand that I must neither confirm nor deny that given where we are in the Budget cycle, but he makes an interesting point about the level of the remittance and his views on its impact.
The hon. Gentleman at the back has been very patient, so I will give way.
I am very grateful to the Minister. Thus far in this whole debate I have not heard one credible reason why we should not abolish non-dom tax status. The Minister seemed to indicate earlier that she is waiting for the right fiscal event, and then she will abolish it Is that right?
Again, I have to be very careful, as any Treasury Minister at the Dispatch Box six weeks before a fiscal event—a Budget—would have to be. The hon. Member will understand that there may or may not be market sensitivities in relation to tax policies ahead of the Budget, so I am not able to give any indication at this moment. What I am trying to do is to set out the facts in relation to tax take, and of course there will be a debate across the House about the whys and wherefores of that.
It is important, for us to have a reasoned debate, that we understand that non-domiciled taxpayers pay UK income tax, capital gains tax and national insurance contributions on their UK income and gains. That is money, as all taxpayers’ money is, that we can use to improve our schools, benefit patients in our hospitals and pour into infrastructure projects that will help level up across the country.
On top of that—again, the shadow Minister seems ready to dismiss this—non-doms have invested more than £6 billion in the UK into UK businesses, helping to grow the UK’s economy. That is an extraordinary amount of money: it is just under half the policing budget for England and Wales. I know that, when writing a speech, these sums may not seem very significant, but the real-life impact these figures have is very significant.
As the shadow Minister also, sadly, does not seem to have understood, we have in fact gone further in making sure non-doms pay their fair share of tax. In 2017, the Government reformed the rules to end permanent non-dom status and ensure all non-doms have to pay inheritance tax on any residential property owned in the UK, even when they own that property through a complicated structure such as an offshore trust or an offshore company. When the challenge was put to the shadow Minister by my hon. Friend Rob Butler about why a Labour Minister had not managed to do that before, we did not have an answer. Those affected by these reforms are paying more than £3 billion per year in UK income tax, capital gains tax and national insurance contributions on top of the earlier figures.
I would like to correct another mistake made, I am sure inadvertently, by the shadow Minister. We did in fact deal with non-domiciled taxpayers in the autumn statement, because the Chancellor closed a loophole to ensure that non-doms who have grown companies in the UK pay capital gains tax to the UK, bringing in an additional £830 million in revenue to support frontline public services. This announcement makes the tax system fairer and ensures that tax cannot be avoided by an individual exchanging shares in a UK close company for shares in an equivalent non-UK company as a way to re-categorise UK income or gains as foreign income or gains. That means that UK resident non-doms pay tax on gains and distributions received where value has been built up in the UK. The remittance basis is intended to provide an alternative tax treatment for foreign income and gains. It does not extend to income and gains that result from UK assets, and the Government are not willing to accept contrived arrangements that allowed clever tax planning to sidestep the tax charge that would otherwise have been due. As I mentioned a few moments ago, any analysis will be considered as part of the usual Budget process. We keep all taxes under review, as usual, and we do not comment on speculation around changes to tax policy outside fiscal events. That long-standing tradition has historically been respected by parties of all colours.
The Government will be voting against the Opposition motion, because it breaches established precedents and would prejudice the development of tax policies. I note that we have a Budget in just six weeks. I also note that we need to maintain an internationally competitive tax system that brings in talent and investment, which contributes to the growth of the economy. It is vital that we deal not just with the current economic problems we face, but also with the long-standing difficult ones that have beset us for decades. As the Chancellor outlined in his growth speech last week, we need to support enterprise so that more businesses want to locate here. Among other things, that means taking steps to reduce the tax burden overall. We are a party that believes in low taxation, and as soon as the fiscal situation allows, we want to reduce it. The Conservative vision for our economy is to unlock our national potential, and to be Europe’s most exciting, innovative and prosperous economy. We are making taxes fairer, simpler, and supportive of growth, to achieve the bright future for our country that I am sure we all want.
Order. A fair number of colleagues want to contribute to this debate. It finishes at 7 o’clock and we will have winding-up speeches. I impose an immediate four-minute time limit for Back Benchers, but that may have to go down. I am sure the SNP spokesperson will bear that in mind.
I will happily bear that in mind, Madam Deputy Speaker. The Minister said that she wanted talent and investment to come to the UK. I think that sorting out the inordinate visa costs and upfront health costs to allow talented people to come here would be rather more effective than allowing a tiny number of very wealthy people to shelter earnings offshore. She also prayed in aid the Budget to justify the arguments she was making, but at the time of the Budget, the Office for Budget Responsibility assessed that by 2027-28 the Government would barely meet its own new public sector net debt target—I think it was by 0.3% of GDP, or £9.2 billion, which is hardly a ringing endorsement.
The issue of those who are non-domiciled, or non-doms, is of long standing. It turns out that the system has been with us since the 18th century—1799—and was designed to allow people with foreign property to shelter that property, and the income from it, from wartime taxes. Instead of being unwound over the years, the system spiralled to the point that by about 2007-08, 140,000 people were using it. Even in 2021, close to 70,000 people in the UK still had non-dom status. Of course being a non-dom isn’t for everybody. It would be great to have the Prime Minister explain, on behalf of all the other near billionaires, the burdens that must be borne when sheltering so much income overseas and away from the prying eyes of the taxman.
So who is the system for? The enlightening report from Warwick University in April 2022 told us that 30% of all people earning more than £5 million a year claimed non-dom status, compared with 0.3% of the population earning less than £100,000. Most non-doms live in and around London. Indeed, more than one in 10 adults in Kensington and the Cities of London and Westminster are or were non-doms. That presumably explains why, in 2015, when changes were proposed, the then Mayor of London—now Boris Johnson and discredited former Prime Minister—described them as being part of an “anti-London agenda”. I would describe them as part of a tax fairness agenda, but, for Tories, paying tax without a fight is not really to be countenanced. I do wonder if there is not a recently retired Tory chairman who might like to give a TED talk to explain how easy it is to be careless when one owes the taxman some money.
I suppose the questions that we should be grappling with are: how much would abolition generate, and how much is currently being lost in tax yield by the Treasury? Those questions have also been around for some time. In an assessment made by Richard Murphy in 2007, it was about £4 billion. In an assessment made in 2015, it was also about £4 billion. It is true that they said that behavioural changes such as becoming non-resident could cut that yield to about £1 billion. Last year, the London School of Economics suggested that the figure could be about £3 billion. Those variances alone justify supporting the motion to ask for the data to be published.
Before I move on, it is worth noting that the politics surrounding this issue have also never been far from the surface. In the run-up to the 2015 election, the then Chancellor, George Osborne, claimed Labour’s plans were merely “tinkering round the edges”. At the same time, it was suggested that Labour’s modest plans were designed to win back SNP voters. Given that the SNP-Labour result in 2015 was 56-1, that was not a very successful plan. However, that spat did illuminate the then Labour leader, Edward Miliband, suggesting that the reforms could still raise
“hundreds of millions pounds”.
While dismissing fears of an exodus of wealth—that seemed to be confirmed by the last LSE report—he suggested that it was morally right to stop the UK operating as a “tax haven”. On that, he was absolutely right. What is odd, though, is that after the election, that same George Osborne did abolish permanent non-dom status. As I think he said, it was preposterous that some families had seen that tax perk handed down through three generations. On that, he was absolutely right.
Let me bring the story up to date. On
“non-doms are good for the economy”.
It is pretty clear that the Government’s policy on non-doms is at best confused. If one were a cynic, given how many very wealthy people have benefited from such an arrangement, one might suggest that it is deliberately opaque. That is another reason to publish the data requested in the motion. If, however, I was being generous, I would concede that the number of non-doms is falling and that the anticipated yield from abolition is genuinely unclear: it is anywhere from £3 billion to £4 billion down to £1 billion, or possibly even the hundreds of millions suggested by the right hon. Member for Doncaster North. We also know that there would have to be exemptions. No one would expect to see foreign students taxed on their overseas earnings while they studied here for a small number of years.
But that is not really the issue, is it? It is about tax fairness. Why should ordinary taxpayers in the UK, even very wealthy ones, who pay their tax through pay-as-you-earn or after an annual return, or who are taxed on their dividends or their pensions, and, with I am sure a few exceptions, pay their dues on time and in full, while the super-rich, the euphemistically titled “economically mobile”, are allowed to dodge tax on the basis of a claimed association with another tax regime when they could have lived permanently in the UK for 15 out of the last 20 years?
Whether the yield is hundreds of millions of pounds, £1 billion, £3 billion, £3.2 billion, £4 billion or more, finally abolishing non-dom status is simply the right thing to do, particularly for those people who for all intents and purposes permanently reside here.
I rise to speak about the specific issue of the constitutionality and propriety of Labour’s motion in calling for,
“a copy of the Treasury analysis related to the effect of the abolition of the non-domicile tax status on the public revenue.”
The point I wish to make could equally be made were any other papers of Treasury analysis the subject of a request for disclosure in this way. It is irregular and at the very least injurious to the public interest, and potentially unconstitutional, to open, for what would be the inspection of the financial services sector and others, papers just before a financial statement or a Budget that may very well, at least in theory, give an improper or unfair advantage to some interested parties. That is why the confidentiality of Treasury documents is so incredibly important, a fact to which the Minister alluded. For that reason alone, the motion should not be supported. It is constitutionally irregular, in my respectful submission.
The Labour party’s opposition to non-domicile tax status is another matter. I, Conservative Members and many others all think it would be wrong to remove that status, which has existed for two-and-a-quarter centuries. Further, the ability to know Treasury analysis before a financial statement would give the very people whom Labour presumably wishes to incommode some advantage. With the greatest respect, therefore, I do not think the Labour motion has been clearly thought through; were it to succeed, which is exceedingly unlikely, it would be counterproductive.
It is not just me who thinks it wrong to abolish the current arrangements. There is a very good reason why they have been in place for two-and-a-quarter centuries. I do not expect Labour Members to pay heed to what I say, but they might, I venture to suggest, pay heed to what their own party has said in the past. Labour, after all, abandoned removing this status when last in government. Alistair Darling said he did not want to turn investors away. It has been said that Labour is an anti-business party. Colleagues have referred to it as being anti-aspirational. Labour Members reject that, but I am afraid the motion calls another conclusion.
Something is better than nothing: make business go elsewhere and the whole UK economy will suffer. The Conservative Government have ensured that non-domiciled individuals pay tax on UK income, and gains and income gains that are brought into the UK, putting fairness at the heart of our system. That is what this Government have already done. They have protected almost £8 billion in tax revenue paid by non-domiciled taxpayers and have introduced over 150 measures since 2010 to tackle non-compliance, and rightly so, in our tax system. They have been closing the estimated avoidance tax gap by almost £4 billion. The rhetoric is one thing; the facts are another. There are good reasons why this motion should therefore be roundly rejected.
Since 2010, Conservative Governments have demanded that working people pay yet more tax, but Conservative MPs and their friends are keen on avoiding paying tax themselves. Working people are picking up the tab again while the rich and powerful benefit from non-dom status and loopholes. Indeed, the Prime Minister himself was Chancellor of the Exchequer for two years before his wife gave up her non-dom status. He himself held a US green card.
This is not carelessness. The Conservative party has deliberately failed to clean up the sleaze and get rid of the loopholes to generate income to strengthen our economy. The Institute for Fiscal Studies has estimated that abolishing non-dom status alone would generate £3 billion a year for the economy. That is how much the current Chancellor has pledged for the NHS over the next two years, so if he is trying to find the money, now he knows how.
While the Tories keep telling us that we are all in this together, the UK is not even in this together with other G7 countries. According to the International Monetary Fund, we are the only country in the G7 that is moving into a recession—we are all alone. Over the past few years, while those with non-dom status have seen tax breaks and benefits, hard-working people in Bradford West and around the country have been let down by austerity and economic failure and are experiencing a big tax burden.
In the last financial year, Government spending per head was significantly lower in the Yorkshire and Humber region than in any other area of the UK. So was Government spending on transport and infrastructure, despite the Government’s commitment to level up the north of England. As for Government spending on education, Bradford West has seen a reduction of 10.2% in real-terms spending since 2015, whereas the national average is 3.9%. The Tories’ failure to properly invest in Bradford district and Bradford West has created devastating outcomes for the area, where child poverty is at 51.2%, the highest rate in the north of England. In Bradford West, 22.3% of households are in fuel poverty, compared with 13.2% in the country as a whole.
It is clear that abolishing this unjust, unfair tax perk would create a fairer and stronger economy that works for everyone, not just the richest in society. Conservative Members argue that abolishing non-dom status would be bad for business, would not be competitive and—as Michael Ellis suggested—would deter business and investment in the UK, but that is simply not true.
I can see why the Tories have an issue with abolishing non-dom status. After all, the chairman of the party resigned for failing to declare his taxes, the party treasurer took part in a tax avoidance scheme, and the party has a CEO whose firm is allegedly involved in a tax avoidance scheme. But while abolishing non-dom status might be bad for the Conservatives, let us not pretend that it is bad for business. Other countries that attract business, investment and entrepreneurship, such as the USA, Canada and Germany, require people to pay tax after six months or even immediately.
Despite the UK’s non-dom status, it is the only country in the G7 that faces negative growth, as predicted by the IMF. Not Germany, not Canada, not the United States—the UK. Honestly, the Conservatives have had 13 years, five Prime Ministers and seven Chancellors and the only thing they have been consistent on is low growth. They talk as if they know what is best for business and the economy, but the only thing they have succeeded in doing is crashing the economy into the ground. If the Government were truly serious about strengthening and growing the economy, if they were serious about levelling up the north, if they were serious about lifting people out of poverty, if they were serious about accountability and ethics or if they were even remotely serious about the NHS and other vital infrastructure, they would have gone further than sacking individual Ministers. They would have abolished non-dom status and closed the loopholes. We need a change to the system, not just the faces.
It is a pleasure to follow Naz Shah.
I want to start by congratulating the Government on what today’s IMF report says about economic growth last year. Despite what some Opposition Members have said, the fact is that we had the fastest-growing economy in the G7 last year, with a growth rate of 4.1%. Our economy grew twice as fast as America and Germany, 1.5 times as fast as France and almost three times as fast as Japan. Those are the facts.
I turn to the Opposition motion. I will address first the policy, then the motion itself, and finally the politics. On policy, I think there is some agreement between our position, Labour’s and the SNP’s. We want a tax system that is fair—clearly people who are better off need to pay their fair share of tax—but that is also attractive to internationally mobile people, whether they are overseas students or international businesspeople. Thirty-five jurisdictions around the world have regimes involving temporary residence tax schemes similar to the non-dom scheme. They might go by different names, but they have the same basis. If people are in a country for a certain length of time but it is not their permanent destination, they should be subject to a regime whereby they pay tax on their local income but not on their international income, and, in fact, I think that that is Labour’s policy.
As for the non-dom scheme in the UK, this Government reduced the period to 15 years—it was previously a permanent scheme—and I think that that was the right thing to do, although questions are being asked about whether it should be reduced further, to 10 years or five. There are also problems that have been rightly ridiculed in the media. For example, people have previously been able to inherit non-dom status. There is also no clear legal definition of “domicile”, although it ought to be crystal clear. I would certainly welcome reforms to the regime. Labour says that it would abolish non-dom status, but I suspect that it would just introduce a new regime that would do remarkably similar things to ensure that internationally mobile people who bring benefits to the economy can come here.
As for the economic impact of scrapping non-dom status, I asked James Murray why he thought the previous Labour Prime Ministers, Tony Blair and Gordon Brown, had not done it, and gave him the answer: they had carried out a review and concluded that, overall, the benefits of non-dom status were greater than the cost and so it brought a net benefit to the economy. There is a spectrum of data, and we do need the data, but if the regime were scrapped and everyone who abided by it suddenly fled in a mass wealth exodus, there would clearly be a huge net loss to the Treasury, whereas if it were scrapped and not replaced with anything, and all those people stayed here and suddenly started paying tax on their overseas earnings, the £3.2 billion a year that we have heard about would clearly bring a net benefit. What really matters is what the response would be among existing non-dom people but also among future ones who might not come to the UK as a result. It is necessary to have the precise data to create the optimum scheme, so that we not only raise revenue for the UK Government to pay for public services but ensure that people pay their fair share.
We clearly should not publish Treasury advice, as the motion suggests, for all the reasons given by my right hon. and learned Friend Michael Ellis.
Finally, let me comment on the politics: why does Labour keep focusing on this one issue rather than many others that are actually more important? It is all about politics. Labour is the party of envy, and we are the party of aspiration. We are the party of workers. We have reduced tax on working people, we have increased funding for the NHS to historically record levels, and all that Labour Members are trying to do is play politics with us.
I do not think I have followed Anthony Browne before, but here we are.
Our tax system is broken. It is unfair and unjust. Non-dom status gives the wealthiest a way of avoiding tax, no doubt while the people who work for them pay out a disproportionate amount of their income in tax. Three in 10 people earning £5 million or more claim non-dom status, whereas the figure is fewer than three in 1,000 among those earning less than £100,000. This is a tax scheme that is taken advantage of by the wealthiest. If Britain is your home and you are making your life here, you should pay your taxes here—it really is that simple. Non-doms get the benefits from all of our taxes, but they are not paying their fair share. It is troubling that there are Members of this and the other place who use non-dom status. If they are voting on issues that have an impact on this country, they should be paying tax here.
Non-dom status was introduced more than 200 years ago. It lets people dodge millions in tax. It is not fit for the modern era. It is not progressive or fair. Working people are having to pick up the tab while non-doms enjoy tax-free earnings. Labour will introduce a modern scheme that will be fair to people who are genuinely in the UK for short periods, to allow us to continue to attract top international talent.
Our system will be fit for purpose in the 21st century. As colleagues have mentioned, the money generated will make a huge difference to our country. Our NHS is struggling. Not enough home-grown doctors and nurses are being trained, but we will do that. There are not enough places for them to study. One of the most common arguments against abolishing non-dom status is that it would cause a mass exodus of international talent, yet research by the London School of Economics shows that only 0.3% of the people affected would leave. That is a tiny fraction of the non-doms. The reality is that they enjoy living here in Britain. Britain is their home. They use the non-dom legal loophole as it is readily available. The study shows that non-doms are more than happy to keep Britain as their home.
Over the course of the pandemic, the wealthiest have got even richer and our country has become even more unequal. Labour, in power, will have the guts to abolish non-dom status and tackle offshore trusts and tax havens. We will introduce a modern tax system that is fit for purpose and fair for all, bringing our rules into line with those of other major economies such as France, Germany and Canada.
Order. Before I call the next speaker, I just want to remind hon. Members that the debate is about the release of papers and that criticism of the conduct of Members would need to be made on a substantive motion. I want colleagues to consider the spirit of the rules in their contributions, which I am sure they will do. They have done pretty well so far, but some have been slightly on the edge. Let us return to the motion itself.
It is a pleasure to follow Ms Rimmer. On the wording of the motion, I cannot really add much more to the comments from my right hon. and learned Friend Michael Ellis. The Opposition know perfectly well that analysis from officials is confidential for a very good reason: to make sure that Ministers have the best possible advice without second-guessing what that might look like in the public domain and potentially affecting markets.
Turning to the substance of the non-dom situation, I really think this is a case where Labour is chasing a mirage. The Government could do with raising more tax if that low-hanging fruit, that £3.2 billion, was really out there, because of the present fiscal situation as a result of the money we have spent protecting people’s livelihoods during covid, through the furlough scheme, and on supporting people with high energy bills this winter. We could do with raising more tax easily, if it was really there.
The hon. Member for St Helens South and Whiston spoke about the LSE and Warwick research, but I do not find that figure of 0.3% very credible because it refers to fewer than 100 people who would consider leaving because of all that additional tax on them. That figure has been extrapolated from the behavioural response to the previous changes, but those changes were more modest. They were modest because the Government took their decision for the same good reason that the previous Labour Government did: looking at the issue in the round, they concluded that this would not be a revenue raiser and it would not be good for the economy overall if we drove people abroad.
The shadow Minister, James Murray, said that when people make their home here they should pay all their tax here, but those non-dom people would not make their home here —they would not come and invest in this country or employ people in this country—if they had to pay tax in that way. That is the key point. We cannot assume that all that low-hanging fruit is out there without assuming the behavioural responses that would follow.
Talking about non-compliance more generally, as the shadow Minister did in his speech, this Government have tackled non-compliance consistently since they came to power, with more than 150 measures since 2010. The estimated avoidance gap under Labour in 2005-06 was £4.8 billion. It was down to £1.2 billion in 2020-21 under this Government. That is already more than the £3.2 billion the Opposition are claiming is available.
The wealthiest have been paying more under this Government and we have been taking the poorest out of tax altogether, contrary to what we have heard from the Opposition. The personal allowance that we inherited in 2010 was £6,475; it is now £12,570, and we have raised the national insurance level as well. We have taken many people out of tax altogether and at the same time ensured that the poorest—the least well-off—are earning more when they are working because we have consistently raised the national living wage. Those are Conservative principles in action: real changes rewarding work and letting people keep more of their own money to spend as they see fit.
Labour obviously aspires to government, about which there have been increasingly cocky briefings in the press, but government is not about easy slogans. It is about taking decisions in the best long-term interest of the UK. It is not about soundbites, party management and trying to buy off the people in Momentum. I might have thought Labour would learn from the last Labour Government. People like Gordon Brown, who considered a five-year cap but abandoned it. People like Alistair Darling, who said that
“such a charge could discourage men and women—doctors and nurses, business men and women—from coming to this country…and we do not want to turn them away.”—[Official Report,
People like Ed Balls, who said:
“I think if you abolish the whole status then probably it ends up costing Britain money because there will be some people who will then leave the country.”
I am sure the shadow Minister admires all those former Labour Ministers, and I am sure he and the shadow Chancellor aspire to the jobs they once held, so why are they going down this road? Because it is an easy, if inaccurate, response to the question they cannot answer: how will they pay for whatever fresh commitment they have made in any given week?
My hon. Friend is making an excellent speech. Does he agree that Labour is playing the classic Labour game of class war as a mirage to try to gather votes from the left?
Keir Starmer has a difficult balancing act, because he has to hold his party together. He made a lot of promises to the left to win the leadership, and he has junked them all, so he is giving them a little red meat on non-dom status to try to keep them on board. I am sure there is a lot of party management happening on the Labour Benches.
Labour has already committed the supposed revenue from this policy to multiple policies. First, it was breakfast clubs, and then it was midwives, nurses and health visitors. The shadow Health Secretary had to admit that, even on Labour’s questionable estimates, the funds supposedly raised would not be enough to cover its NHS reforms. Time and again, Labour Front Benchers and Back Benchers alike hide behind this dubious policy, which I fear is a mirage in terms of the money it would raise, to justify yet more uncosted pledges. Labour has made so many uncosted commitments already: £150 billion of spending and less than £60 billion of revenue rises. We have heard £90 billion of uncosted commitments from Labour in this Parliament, which would cost each household more than £3,000.
That is what we get under a Labour Government, which is why we need to stick with a Conservative Government. Labour has never left office with unemployment lower than when it came to power and, of course, it cannot be trusted with the public finances, as we know from the note left by Liam Byrne: “there is no money.”
We will get the debt down, we will halve inflation and we will get growth going again. Voting for Labour would put all that at risk.
That was very interesting from Aaron Bell—particularly his revelation that Labour aspires to be in government.
It is pretty much universally accepted that people who work in the UK, make their life here and benefit from all we have to offer should pay their taxes here. I cannot see why that is a controversial point. Non-dom tax status completely undermines that by creating a tax system that is rigged against working people. It cannot be one rule for the wealthy and another rule for everyone else. This is not about envy or wishing that we were incredibly rich, or anything like that; it is about basic fairness.
Those benefiting from non-dom tax breaks are estimated to have almost £11 billion a year in unreported income and capital gains overseas. As has been mentioned, a study by LSE and the University of Warwick estimates that this means the UK has lost more than £3 billion in tax revenue. Labour believes this money would be better spent on the NHS than on lining the already bulging pockets of the extremely rich.
This debate is about transparency, fairness and prioritising areas of society that need support. It really is as simple as that. If there were a direct choice between more non-doms and more nurses, between a tax break for the wealthy and a school child’s breakfast, what would the Government choose?
We have to ask ourselves whether we want to live in a country in which it is easier to avoid paying taxes than to see a GP. There are 4,500 fewer GPs in England than there were a decade ago, with more than 1.3 million people having to wait more than a month to see theirs. We have heard Conservative Members floating the idea that people might have to pay to see their GP. My father in Ireland had to pay to see his GP, and perhaps he would still be with us now if he had not put off going to investigate the symptoms of bowel cancer. We certainly do not want to go down that route.
The money raised by abolishing non-dom tax status could double the number of medical school places, double the number of district nurses and provide 10,000 more nursing and midwifery clinical training places. In my constituency, we have a wonderful University of the West of England campus that is training midwives and nurses. We also had a birth unit at Cossham Hospital, which had to close because there simply were not the midwives to staff it. Southmead Hospital had to be given priority, where the more critical cases go. We absolutely need to invest in more doctors and more nurses, shorter waiting times and better care.
We could also use the profits from closing this loophole to provide breakfast clubs for primary school children. We know that far too many children are spending the day at school too hungry to learn; according to Magic Breakfast, as many as 3 million children could be in that situation. Some £3 billion in lost revenue from abolishing the non-doms loophole would go a long way to filling that gap.
No one would propose this non-dom policy now if it did not already exist. As has been mentioned, this move would simply bring us into line with major economies, including France, Germany and Canada. What the proponents of the non-dom regime, and some MPs speaking here today, have failed to understand is that to the British public, who regularly poll in support of abolishing the exemption, it is about what is fair and right. A common refrain throughout the pandemic was, “We’re all in this together. We are all contributing to a common cause.” The fact is that we are not and we should be.
It is a pleasure to follow Kerry McCarthy. Just to confirm, I will not be voting for the motion. It clearly is nonsense that we could require the Chancellor to publish all the things he has been considering in the lead-up to the Budget in March. However, I look forward to the Government sticking by that principle and to our not reading the Budget in the Sunday paper the week beforehand—I fear I may be a little disappointed. However, I gently say to the Minister that, if he or the Chancellor appear at a Select Committee after the Budget and come up with a number as a reason why they did or did not make a policy change, it is not unreasonable to put in the public record how they came to that number. Had the shadow Minister just stuck to his first calculation in the motion, he may have had a little more support for it. But I cannot vote for the whole motion.
I actually support ending the current non-dom status. I think it is outdated and I do not think people can make a coherent case for the rules as they stand. The idea that where my father was born should define my tax treatment is clearly nonsensical and we need to find a more modern way. We need to stand back and have a proper look at how we handle the complex area of residents and non-residents across our tax regime, and probably across our benefits and access to public services regime. When we look at this, we have to navigate all manner of different terms: not just “residents”, but “ordinary residents”, “domicile”, “deemed domicile”, “habitual residents” and “settled status”. All these things are trying to do the same thing: work out when someone is legally resident in the UK sufficient to trigger certain tax obligations or entitlements.
Having left the EU, where we had to tweak our rules to try to get around staying compliant with freedom of movement, freedom of establishment and all those things, it would make sense to step back and have a full review of what we are trying to do in this policy area, what we are trying to tax and what we are not trying to tax, so we could have coherent policies and a new law that people could understand—both those here and those coming here.
Having worked as a tax adviser, I can say that, when one has clients bringing people over to the UK to work, they have to incur quite a lot of cost trying to work out what their tax position is, what they have to comply with, what they do not have to do and what they should do before they come and what they should not. If we can make a clearer, simpler regime, that would be far more beneficial all the way around, especially as the world has moved on and the economy has moved on. These rules were written decades, or hundreds of years ago. They do not really work for a modern, mobile, dynamic economy where people can move money at the click of a finger through the internet. What is a UK-based asset and what is not? If I have just moved it into a crypto account held in Brazil, is that really a UK asset? What is my income on that? Is it in the UK that I have the tax or is it not? We need to have a thorough review of how all these rules work, so that we can have a coherent system and not just play around the edges with individual bits, because we will end up in a slightly different mess and having slightly different loopholes from those that we had.
As part of that—I think when we, including the shadow Minister, are talking about abolishing non-dom status, we mean recreating something similar but for a shorter time and with slight restrictions in place—we absolutely need to have temporary resident’s relief, whereby, if you come here for a short time, you pay tax on what you earn here and on the assets you have here, but you do not pay tax on whatever you have earned already abroad and you never bring here and never will. I think that would be too strong a deterrent for people to come here.
I think we could find consensus on what a coherent policy looks like, but the Government should go away and try to rethink all these rules and make sure that they work for a modern, dynamic, global and mobile economy. Otherwise, one day we will find out that we have something that you can drive a coach and horses through and it is not at all fit for the way we work these days.
I am the MP for West Dunbartonshire and I do not think many of my constituents are non-doms, but I do know that they are struggling, as so many across these islands are, with inflation, the cost of living and, of course, the economic catastrophe that is Brexit.
My constituents cannot actually take advantage of non-dom status to reduce their financial exposure to the taxman, but they are certainly the types of people that HMRC will come after if they miss a self-declaration or other arbitrarily imposed deadlines, which have done so much to convince people that the tax system is rigged in favour of the better off.
There are also implications in preserving non-dom status and we need to think more about what the status means for our social contract. Maintaining this dual system, whereby there are convenient opt-outs for so many who are of means, when the system seeks to be unnecessarily punitive to those who are not of means, causes the very foundations of our society to crumble. At least from my perspective we can see clearly that there is one rule for them and one rule for us.
Tax is one of those things that can quite quickly cut to the core of our political outlook. There are those of us who see tax as part of the fundamental glue that holds our society together. Many others deny society even exists. Each to their own and, to paraphrase Donald Trump, only stupid people pay taxes. I can say unequivocally that I and my party believe the opposite: if you are lucky enough to be able to pay tax, you should pay tax when you are able.
Another practical step would be to stop doling out honours to party donors. I must declare that I would abolish every honour, but let us accept that the Government and, I am afraid, even the loyal Opposition, agree with the honours system. We all know that they have been very fond of doling them out over the years. The reality is that the British establishment will not abolish them but, on that basis, let them give gongs to the folk who pay the most tax every year. I believe there was even a story in the London Times the other day about such folk. That alludes to the idea that we should create positive incentives for paying tax, instead of simply making it about taking away loopholes for the wealthy.
Let us be transparent. Let us make all our tax records publicly and freely accessible, as they do in Norway. The £3.2 billion that the LSE survey found is a drop in the ocean in terms of public finances. But if the super-rich do not want to live in London, I am sure that Londoners would say, “Cheerio, ducks, don’t let the door hit you on the way out.” If their commitment to this political state is that thin, I am sure we all agree that they will not be missed. If tax were the prime consideration for many of them moving to these northern latitudes, they should have gone the whole hog and moved to the Isle of Man or Jersey. Indeed, it has even been noted in the press recently that some in the other place may have even sought sanctuary in Manx and Jersey for the very purpose of possibly not paying tax—or was that Honduras?
I am grateful to people such as Carol Vorderman for speaking out on this matter and bringing it into the public discourse. Carol, keep going. People who use the system to not pay tax in this way are thieves. They are not standing up against the big state; they are selfish, arrogant and inextricably linked to the establishment. They are this state.
I rise to speak against the motion on the Order Paper. It is important that we recollect what that is. It says that Treasury analysis of a potential tax policy should be laid before the House two weeks before the Budget. Having listened very carefully to the previous four speakers from the Opposition Benches, I do not recall any of them actually addressing that point. That is surely because the Opposition know full well that no Government could publish pre-Budget advice, for the simple and straightforward reason that Budget announcements are market sensitive. No Government of any colour have ever published that sort of advice. Those on the Opposition Front Bench know that full well and they know that, if the situation were reversed, which, hopefully, it never will be, they would not publish it, either. It is important that the public understand exactly what has been put on the Order Paper by the Labour party, which has brought us here today.
This Conservative Government are absolutely committed to a fair tax system, ensuring that the UK attracts talented people to work and do business here and, at the same time, generating tax revenue that pays for our public services. That was brilliantly set out by my hon. Friend the Minister. It is, of course, vital that our tax regime is competitive and that talented entrepreneurs overseas see the UK as a country where their risk taking will be rewarded and where their commitment to developing their business will bring jobs to British people, strengthening our economy and generating in turn more tax that will pay for more public services. It is a virtuous circle.
Let me be clear that I am not in any way suggesting a blank cheque or a free ride for non-doms. I absolutely accept that non-dom status should not be permanent and I am pleased that we have already moved away from that. I absolutely agree with my hon. Friend Nigel Mills that there is scope for further reform, but that should be considered calmly and rationally.
Let us remember that non-domiciled individuals already pay tax on UK income and gains. They also pay tax on foreign income and gains if those moneys are brought into the UK. We have heard of some £8 billion in UK tax contributed in 2021 alone. I also made the point, when I intervened on the shadow Minister right at the beginning of the debate, that successive Labour Chancellors tried to reform the system and gave up, because they realised it was not the easy panacea that those on the current Labour Front Bench would have us believe. Even Ed Balls has said that abolishing non-dom status would probably end up costing Britain money, because some people would leave the country.
I make those points because it is important that, when we consider headline-grabbing ideas, we take the time to look behind the headlines and think carefully about all the implications of a policy proposal. I know that is exactly what my right hon. Friend the Chancellor is doing as he prepares his Budget, listening to ideas and weighing up their implications.
My hon. Friend is making a powerful and important speech. Does he agree that the reason why the Labour party is focusing on this issue so much in this debate and during Prime Minister’s questions is that, while we are the party of aspiration, Labour is the party of envy and is just trying to play class war?
I have no alternative but to agree with my hon. Friend—otherwise, what on earth is the point of having this discussion? We believe in aspiring, striving and achieving and we then believe in paying our fair share of tax, which generates the public services that we value so highly.
As I was saying, the Chancellor is currently weighing up what are the best policies to stimulate growth. Of course that involves raising tax revenue, but we need to do so in a way that does not stifle the potential for economic growth in this country. There are plenty of people giving him advice on how to do that, including some of my constituents, and even me.
I believe that there are plenty of changes we could introduce. I would like us to look at the cap on private pensions; doing so would enable us to get more people in their 50s remaining in work or returning to the workforce. Some dub that current tax a doctor’s tax, because it creates a strong disincentive for doctors to work extra shifts—doctors, the very healthcare workers the Opposition are so keen that we should support. I agree that we should support them, so let us make a tax regime that creates the opportunity and potential for them to want to work more.
There are other taxes that also impede free markets—stamp duty land tax could be considered one of those—but this is not the place to consider the detail of all that. Nor is this the place for the publication of Treasury analysis on the effect of the abolition of non-dom tax status on public revenue, because of the time, just before a Budget, when the Labour party is suggesting it should be done. Let us instead focus on the real, pressing needs of our economy for our constituents: driving opportunities for growth, building a skilled workforce, creating jobs and so generating revenues that will support our public services for many decades to come.
In a modern society it is ridiculous that we still have so many loopholes for people paying tax. If people live and work here and benefit from our public services and our society, they should contribute fully in their taxes. As colleagues have said, the Tory Government have failed to close the non-dom tax loophole and are instead choosing to raise taxes on working people.
However, I do not want to focus my time on restating the arguments already presented. Instead, I will speak about how the revenue created by the abolition of non-dom tax status would be used to benefit our young people—headline-banging stuff. As colleagues may recall, in 2016 I set up the cross-party Youth Violence Commission, and we spent the next four years examining the root causes of youth violence in our search for solutions. We held a series of evidence sessions in Parliament and worked with academics and practitioners to produce our full report in 2020. The early years of a child’s life can have significant long-lasting effects on their life course trajectory, affecting everything from physical and mental health to skills development.
Many of the witnesses emphasised to the commission the importance of the early years, and a point that came up time and again was the importance of early intervention. Witnesses spoke at length about the links between early childhood experiences and the likelihood of being involved in serious violence later in life. One of the report’s recommendations was for further investment in programmes that help to prepare parents for parenthood and provide support in the early years of parenting.
It might seem a modest start, but Labour’s pledge to deliver breakfast clubs in every primary school in England, alongside our promise to remove legal barriers to councils opening new childcare facilities, will be an important first step on the route to delivering a modern childcare system. Although our schools and other breakfast club providers try to keep their costs down, as the cost of living crisis continues to bite, too many families are struggling to afford childcare. That forces many to cut back on their hours or even to leave the labour market altogether. As well as enabling parents to work, breakfast clubs have been found to be good for children’s social development and to encourage healthier choices. I am sure that we have all been told at one time or another that just having a good breakfast helps with concentration.
Our young people are our future, and we should be investing in them, so I ask the Government to end non-dom status and offshoring, and prioritise the future of our young people.
It is a pleasure to follow Vicky Foxcroft, and I commend her for her speech.
It has been asked a few times this evening why there is all this focus on the non-domicile tax status and whether it should be abolished. This has become quite an emotive subject, partly because it has become a lightning rod for a whole range of other questions and concerns about the UK tax system and the need for reform. Those questions include, “Is it fit for purpose?”, “Does it raise sufficient revenue to resource our public services adequately?”, and “Does it distribute the burden fairly across society?” We need only look at how the tax system interacts with wealth inequality to see that there is a strong case for broader tax reform.
Wealth inequality should concern all those of us who seek to bring about a fairer and more prosperous society. At present, the wealth held by the richest 1% of households is greater than that held by 80% of the population. Such inequality poses a severe and long-term threat not only to the health of the economy, but, as my friend Martin Docherty-Hughes said, to the future vibrancy of the social contract—of civil society itself. I would very much like the Chancellor to set out measures to address this issue in the forthcoming Budget.
The key, in my opinion, will be how the taxation system can be reformed to ensure that the burden of taxation is distributed more fairly—we have heard a few ideas this evening—and with that endeavour in mind, I think a few obvious examples warrant further attention, such as the decision last year to lower the additional rate threshold for income tax. As a result of that change, someone earning £150,000 a year will pay almost 1% more of their income in tax, while someone earning £1.5 million will pay only about 0.1% more. We could go through the different income levels to make similar points. That raises the question of whether additional thresholds need to be introduced to the income tax system to make it far fairer and more progressive, which I believe the Scottish Government have done for taxpayers in Scotland.
Likewise, I think we need to consider whether it is acceptable for there to be such a discrepancy between the primary and upper rates of national insurance contributions. It is not appropriate for earnings of £50,000 to £170,000 to be levied with a 12% rate when earnings above that threshold incur a 2% rate. All those discrepancies, issues and inconsistencies feed into a widespread concern—one felt by many in Ceredigion—that the system is rigged and is not working fairly. That is something that we should be concerned about if we value a harmonious society and hope to build a prosperous one.
Before I bring my remarks to a close, I will touch upon an issue that needs further Government attention: the tax gap. In 2020-21, it was estimated that the tax gap was £32 billion, or 5.1% of all tax liabilities. Although that figure is contested, I am sure we can all agree that it is still a significant amount of lost revenue to the Exchequer. Given how large the gap is, one would hope that the teams responsible for pursuing this lost revenue within HMRC were appropriately resourced. However, recent analysis by TaxWatch UK considering the approaches taken to tackling tax fraud in comparison with those taken for benefit fraud, suggests that that is not the case. Despite tax fraud costing the Treasury nine times the amount lost to benefit fraud, the Department for Work and Pensions employs 3.5 times more staff in compliance than HMRC, when adjusted to the size of the tax and benefit gaps. I think that should be considered when it comes to the Budget.
This place is a contradiction. Look at the speed at which this place operates when the Government are determined to bring about a change in the law—from the minds of Ministers to the statute book in just a few weeks. Then I look around, and I see the archaic practices that this place still reveres. Yes, it can be argued that traditions have their place, but when we look under the surface and see some of these ancient laws that not only remain in place, but that some seek to defend, it becomes clear that the forces of conservatism are alive and well here.
Non-dom is a legislative hangover from the 18th century. Far from being an ancient and noble right, it is nothing more than a tax avoidance device. A week is a long time for some; it appears that 220 years is not long enough when it comes to helping your wealthy friends or even your spouse escape from paying their fair share of tax. In many ways, the intransigence we see in the face of mounting opposition to this outdated law shows the Government’s poor approach to the UK tax system. They have failed and continue to fail to act upon and prevent basic abuses of the tax system.
I have no doubt that some on the Government Benches believe that people who avail themselves of such loopholes as non-dom are being clever or aspirational, as we have heard several times today. I suppose they might say, “Why pay more tax if you can use these loopholes to your advantage?” That misses the point. Taxes ought not to be viewed as something to avoid; they should be viewed as part of everyone’s contract with society—a contract that says, “Pay your dues, and in return we will provide security, education, healthcare and transport.” In short, it is the bargain necessary in every civilised society, and it is crucial to securing a fair country that works for all, providing the services on which we rely and security and prosperity for all.
There should not be a two-tiered approach to taxation, where the super-wealthy can shield their riches with expensive accountants and the rest of us have to pay more as a result. Put simply, such loopholes should not exist, because they benefit a tiny proportion of some of the world’s wealthiest individuals at the expense of everyone else in this country, and frankly they are laughing at us. Look at how the bulk of these people live in the wealthiest parts of London, making a mockery of the levelling-up agenda.
It is also worth saying that some of the people who choose to live in this country then decide not to live by the same rules as everyone else, because they believe they will be wealthy if they do not pay their full taxes in the UK. Perhaps the most striking thing about this group is not just that they are incredibly wealthy, but how numerous they are as a proportion of the country’s highest earners. Research published last year from the University of Warwick and the London School of Economics found that 30% of those earning in excess of £5 million were registered as non-doms in 2018, and a further 10% have been non-doms at some point in the past. That means that just under half of those earning more than £5 million a year have chosen not to pay their fair share of tax to the UK coffers. What kind of country are we living in when those with the broadest shoulders get to opt out of paying their fair share? That shows that non-dom is a loophole for the rich.
We still have people defending this archaic status in the House. They argue that removing it would damage the economy, as those registered would leave, taking their riches and spending power elsewhere. I even remember the Chancellor arguing just a few months ago that if we scrapped non-dom status, those people would leave the country and spend less money in restaurants. As an economic strategy goes, it is little wonder we are the only country in the G7 with negative growth, when our great hope for prosperity is a few rich people spending more money in restaurants. We believe that everyone should pay their fair share in tax and that people stashing away money in offshore accounts is not acceptable, and we do not think that the wealthiest in society should be able to get away with this any longer.
It is always a pleasure to follow my hon. Friend Justin Madders, who always expresses himself so eloquently. In my constituency, fewer than 100 people are non-domiciled for tax; in the constituency of my neighbour the shadow Chancellor, my right hon. Friend Rachel Reeves, there are fewer than 100 people who are non-domiciled for tax, as there are in Leeds East, too. In fact, in the whole city of Leeds of 800,000 people, relatively few are non-domiciled for tax.
In the constituency we are standing in, 14,600 people—more than 20%—are non-domiciled for tax, according to the House of Commons Library. If any Member wants to intervene and tell me I am wrong, they should feel free. What we do not know is how much the public revenue is losing from those people. My constituents and the people of Leeds would love to know how much tax is being lost just in the Cities of London and Westminster from people utilising the non-dom tax loophole. I would like to know whether it is more than the whole amount that all 70,000 of my constituents pay in tax. That is what this motion is about.
My hon. Friend James Murray is a modest man. He does not want too much, just to know how much we are losing from the public treasury. He has not moved a motion to ask for the abolition of non-dom status. He may have ambitions in that area, but that is not what we are talking about. He merely wants clarity and transparency, as does everyone on the Opposition Benches. But some people want opaqueness—I sure they are sitting on the Government Benches—as we have heard time and again.
Let us look at what happens with tax in other countries. The Conservative party often lauds the United States of America’s tax system and its attitude to entrepreneurship. Would this loophole happen in the United States of America? Would it happen in Canada, Germany or other jurisdictions? No, it would not. They require people to pay tax after a qualifying period. In the United States of America, that qualifying period is just one day.
Recent research from the Tax Justice Network has shown that the UK leads OECD countries in tax abuse.
That is a very good point. When Ukraine was first invaded we saw how much Russian money was in this country. In fact, I do not think we have yet resolved that issue fully through Magnitsky and other means.
I will try to keep to the time limit, as more Members would like to speak, so I will finish by saying that I go to schools a lot around the city of Leeds. Many families cannot afford to give their children breakfast. The ending of this loophole would mean that we could give every child in every primary school in this country a free school breakfast. The Prime Minister has aspirations to raise standards, but there is nothing more that he—or we—could do for those children than to give them that free breakfast, paid for by people avoiding tax on their earnings here.
If you work here and you make your life here, you should pay your tax here. It is a simple proposition that I know people across the political divide in Wakefield agree with. We are in a cost of living crisis. I know how hard it is for people at the moment who are struggling to make ends meet. Mortgages are rising, rent and bills are going up, and the price of their weekly shop is higher than ever. Yet what angers me most is that a few at the top get away with not paying their fair share.
Our estimates show that there are more than 50,000 non-doms in just six London constituencies. There have been fewer than 100 in Wakefield, but the hard-working people in my constituency who play by the rules have had their taxes increased by this Conservative Government. Our council has been stripped of yet more funding, having seen £300 million cut since 2010. That is not fair. The continued failure to crack down on this loophole makes a complete mockery of this Government’s so-called commitment to levelling up.
I know what people’s real priorities are: an NHS that can see them on time, where they do not have to queue for hours in A&E or for months on waiting lists for treatment, and a modern childcare system that helps families struggling to get the provision for their children around the hours that they want to work. Labour would use those billions in lost tax revenue to invest in our NHS, training the next generation of doctors, nurses and midwives, and we would prioritise children over non-doms, with breakfast clubs for every primary school child in England.
Some Government Members have spoken in the past about how this could lead to some of the richest people taking their wealth out of the UK, but according to research from Warwick University and the LSE, when the non-dom regime has been reformed, it has only had a minimum impact. In 2017, reforms that restricted access to the non-dom regime for long stayers led to just 0.2% leaving the UK, and of those who had been in the UK for less than three years, only 2% left.
The current tax system is bad for business. It acts as a barrier to investing foreign income in the UK, meaning that we see neither the tax benefits nor the investment from this income. Over the past 13 years, we have been told time and again by the Conservatives that we are all in this together, but with a tax status that is unfair to ordinary taxpayers, keeps investment outside the UK and harms our economy, how can we be? For many like me, this is a simple case of fairness and of right and wrong. It is time for change, and I support the motion wholeheartedly.
As we have heard from Opposition Members today, this Conservative Government have repeatedly failed to deal with the non-dom tax loophole, and what is the result? It is higher taxes on working people; tax breaks for the super-rich, when we could be training new NHS workers and delivering breakfast clubs for primary-age children; and a Government mired in sleaze and scandal, with a former Conservative Chancellor who found adhering to the ministerial code just too taxing. Just this morning, the International Monetary Fund predicted that the UK will be the only major economy to see negative growth. The choice is clear: slow growth, stale ideas and sleaze with this Government or ambition, aspiration and a clear plan with Labour.
I thank Members for their contributions to the debate. My hon. Friend Naz Shah spoke passionately about how working people are picking up the tab for the Government’s failure to invest in her constituency. My hon. Friends the Members for Bristol East (Kerry McCarthy) and for St Helens South and Whiston (Ms Rimmer) got to the heart of this debate about the current system. This is about fairness—if people live here and work here, they should pay their taxes here. That was echoed by my hon. Friend Justin Madders, who said that this loophole should not exist.
My hon. Friend Alex Sobel asked a simple question, and I would be grateful if the Minister could answer it: how much tax has been lost by the loophole? Do the Government even know? My hon. Friend Vicky Foxcroft talked about how abolishing the non-dom status could help the Government to prioritise support for young people.
As my hon. Friend James Murray clearly laid out, this Conservative Government are out of ideas and missing in action. Food and fuel costs are soaring, while our economy is left completely exposed. I am sure the Minister will repeat that rising prices are not unique to Britain and many countries are experiencing inflationary pressures, but what is unique to Britain is that we are at the bottom of the pack. What is unique to Britain is that the Government refuse to take action. Through decisions such as the one they will take today when they vote on Labour’s motion, the Government are entrenching the pressures that the economy faces and pushing costs on to working people as their own Ministers seek to avoid them.
No one will be reassured by the Government’s arguments that all countries are experiencing soaring inflation. The Prime Minister has repeatedly said that the UK will grow the fastest of all G7 countries, but today’s IMF stats set the UK far behind its competitors. Contrary to the assurances of the Prime Minister and Chancellor, we are the only G7 country that is forecast not to see its economy grow. The Chancellor could not be bothered to come to the House to respond to those stats today, but it is good to see the Financial Secretary to the Treasury in the Chamber.
The Conservatives have had 13 years in government, but they have failed. Throughout the chaos of the last year, with constantly changing Prime Ministers and Chancellors, the British public could be sure about only one thing—that their taxes would continue to rise while the pound in their pocket got weaker. While people’s pockets have been emptied, a few at the top are wriggling out of paying their fair share. The non-dom tax status allows the wealthy few to avoid following the normal rules and requirements met by people and businesses up and down this country who work hard and pay their taxes. Instead, those around the most powerful in Britain benefit from our country’s generosity while getting away with not contributing their fair share.
The non-dom tax status is an out-of-date, 200-year-old system that allows people to dodge millions in tax. The Government may pretend that the system is necessary to provide a trickle-down effect to the rest of the economy, but can they explain how countries with much more successful economies than ours manage without non-doms? Canada and Germany require their equivalent of non-doms to pay their taxes after just six months, and in America, they pay their tax from day one—day one! As a modern economy, Britain should operate with modern principles in line with other major economies such as France, Germany and Canada.
As we have heard, the non-dom tax loophole costs the economy £3.2 billion. With a modern taxation system, we could provide the much-needed investment that our public services are crying out for. A Labour Government would scrap the non-dom tax status and end tax breaks for private equity bosses and private schools. A Labour Government would crack down on hidden offshore trusts that allow people to avoid paying their taxes.
With the money that would raise, a Labour Government would fund the biggest recruitment drive in modern NHS history and provide breakfast clubs for all primary aged children. As my hon. Friend the Member for Ealing North laid out, Labour would train the next generation of doctors, nurses and midwives, so that the NHS can treat patients on time, as it did under the last Labour Government. Labour will support breakfast clubs for children across the country, because we all know that hungry children find it harder to learn.
A Labour Government would do all that by scrapping the non-dom tax status, as we called for ahead of the autumn statement. Although the Chancellor, or perhaps the Prime Minister, decided against it, the Chancellor told the Treasury Committee that he would look into it. Can the Minister tell us whether he has? The Government are yet to publish any analysis or provide an update on their considerations. Why are Ministers so quick to tax my constituents and so slow to act on non-doms?
That is why we are here today. We have heard about the difference that abolishing the non-dom status could make. Academics have estimated that the status costs the Government more than £3 billion, yet the Government refuse to move. Why? So far, they have refused to publish the analysis that would lay out exactly what trade-offs they are choosing to make. If the Government’s analysis shows that the non-dom status is an asset to our economy, why do they refuse to publish it? In his closing speech, will the Minister provide us with answers to some of the many questions raised today?
Labour’s proposal is not just about raising much-needed money; it is about fairness in the tax system, the same rules for all, and support for those who keep our economy growing. By voting against our motion today, the Government will make it clear exactly whose priorities they are here to serve, but Labour is clear that if people make their lives in Britain, they should pay their taxes here.
Before I call the Minister, I remind hon. Members that, if they have contributed to the debate, it is very important to get back in good time for the wind-ups.
Although we may not agree, it is always a pleasure to hear the passion that Abena Oppong-Asare brings to her role.
The public expect us to have a plan for the economy, for growth and for the country, and we do. As the Prime Minister has said, we have five priorities that deliver on the people’s priorities: to cut inflation by half, to grow the economy, to get the national debt down, to cut NHS waiting lists and to stop small boats crossing the channel. As we deliver against these pledges, we will move towards a better future, with our economy growing faster and the benefits shared across the whole of our country.
Just as we did in the pandemic, we will continue to support the most vulnerable. That is why we uprated benefits by inflation—an £11 billion commitment. It is why we honoured the triple lock on pensions—that is billions more on supporting pensioners on low incomes. It is why, when Putin’s war on Ukraine hiked the global cost of energy, we delivered a generous subsidy to cushion households’ energy bills: £900 for each household last year and £500 this year, on top of a £900 payment for everyone on means-tested benefits.
The Opposition do not want to dwell on this because they recognise no limits when it comes to spending other people’s money. Opposition Members who say we are prioritising the wealthiest simply need to look again. At the same time, we need to make sure that our economy is fertile for growth, and it would be wrong to make decisions based on what is politically expedient at the cost of public services. As the Chancellor has said, it is important to look at any proposals on non-doms in the light of the true impact on the public finances.
I will respond to some of the points Members made shortly, but let me first remind the House that it is well established, in particular in developing policy, that Ministers of the Crown must be able to receive free and frank advice from officials, especially when that advice is market sensitive. It is entirely right that Parliament hears Government decisions first, but that should be through the established process of a fiscal event, when the Government can set out their decisions on market-sensitive issues such as tax in an orderly fashion.
We started this debate with a demolition of the arguments put forward by James Murray by my right hon. Friend the Financial Secretary to the Treasury. My hon. Friend Rob Butler raised a valid point, to which we have yet to receive an answer, about why successive Labour Governments did not take action during their years in power. I am very happy to take an intervention if shadow Ministers would like to answer that right now.
My right hon. and learned Friend Michael Ellis, a master of the constitution, rightly observed that the motion is unconstitutional, irregular and injurious to the public interest. My hon. Friend Anthony Browne, with his deep knowledge of these matters, reminded us that 35 countries have similar schemes. He also reminded us a number of times during the debate about the Labour party using this debate, once again, to restate its credentials as the party of envy. Labour Members have not learned and they have not changed.
My hon. Friend Aaron Bell reminded us of how we on this side of the House have taken millions of people out of tax entirely, with an increase in the rate of the personal allowance from £6,500 when we took office to £12,500 today. My hon. Friend Nigel Mills gave us his own view that he sees a case for reform in this area.
People across the country are looking to us in this House to get inflation down, cut debt and unleash growth, and we have a plan to do so. It is an inflating-cutting plan that will see the economy growing, debt falling, NHS waiting lists cut and small boats stopped—that is what we will deliver. Our plan is rooted in economic stability and the prudent management of our finances. Not for us the shadow Chancellor’s spend now, pay later economics. In the three weeks since Labour Members promised no “big Government chequebook” they have made £45 billion of unfunded spending commitments. That is why her predecessor, Liam Byrne, left us a note saying, “I’m afraid there is no money.”
Rachel Reeves has been busy. One minute she is hanging out with masters of the universe in Davos, the next making promises to masters of the unions in Deptford. From glühwein to white wine, the only common denominator is spending more of other people’s money. But we will not be distracted from our important task, and we will not indulge in this sort of procedural politics from the Opposition, which I regret is the sort of thing that lowers the esteem of this House. Disregarding established precedents while prejudicing the process of consideration would not be in the public interest, especially when we have just weeks to wait until the fiscal event. Instead, our focus is delivering on the people’s priorities, and delivering a Budget to help achieve them. That is what we are focused on, and that is why Conservative Members oppose this desperate and distracting motion.