One day on, and we’re still reading total hogwash about non-doms. Jolyon started it, with his ill-conceived back-of-a-fag-packet calculations that started to unravel almost as soon as he had pressed publish. Then campaigners changed tack, arguing that it was never about money but was about fairness instead. The exercise of how it’s “fair” to change non-dom taxation in a way that might reduce overall tax revenues, leaving ordinary people to pay more, is left to the reader. The indomitable non-dom campaigners are back again today, claiming ‘hell no, they won’t go’ in what might be a case study in missing the point.
Enough, already. This post aims to set out the dynamics of answering the question of what would be the impact on tax revenue of abolishing the non-dom remittance basis.
First, we need to establish just what the non-dom basis is. Thanks to the CIOT, there’s a handy primer to the law here, and I suggest you go refresh your memory as it’s a good summary.
So, Labour’s policy is to prevent those who currently claim the remittance basis of taxation in respect of their non-UK income from doing that in future.
Currently we get:
Where N is the number of non-doms claiming the remittance basis, IncUK is their UK taxable income, TR is the tax rate, Unremitted is their unremitted foreign income, Remitted is their remitted foreign income, RBC is the remittance basis charge and multiplier is a variable to reflect their economic impact on the rest of the economy. [Of course, you can’t actually multiply N by the average income for each non-dom. More strictly, you should be summing the bit in brackets individually across the population N. But it’s easier to understand if it’s presented in this way.]
Labour would move to this basis:
Where IncForeign = Unremitted + Remitted. I’ve put some redundant terms in each equation to make them easier to compare.
Jolyon’s analysis can be summarised, roughly, as follows:
- N won’t change much because previous changes were accompanied by small behavioural responses.
- He ignores the max(UK-Foreign) side of the tax rate calculation using TRUK instead, although this may be because people who currently pay the remittance basis charge do so to avoid a UK tax charge that would otherwise exceed the remittance basis charge. Still, it’s important to calculate these things properly. Guido called him on this yesterday.
- He ignores RBC altogether. He has claimed on Twitter that its impact would be relatively insignificant.
- And he ignores multiplier altogether.
He argues that it’s OK to simplify it like this because the behavioural impact is uncertain, so we can smear its impact across all the other variables to arrive at an overall approximation of, he says, £1 billion or more.
Don’t ignore the remittance basis charge
But omitting RBC is a howler. He’s trying to calculate the steady state impact of abolishing the remittance basis altogether. Currently, only a handful of people pay the charge as it only applies if you’ve been living here for some time. But if all 49,000 people who currently claim the remittance basis had to pay the remittance basis charge, even at its lowest level (£30,000), this would bring in £1.47 billion. And Labour just abolished the remittance basis, so that represents a loss to the Treasury of more than Jolyon claims would be brought in by changing the way non-doms are taxed.
Don’t overlook the spending power of rich people
Omitting multiplier is also a howler. Anyone who is prepared to (eventually) pay the remittance basis charge is rich. Richer than you or I can imagine. Rich people tend to have lots of money but no time, so they use their money to pay people who have lots of time but not so much money to do things for them. They hire drivers, cleaners, nannies, executive assistants. And they spend money on cars, houses, golf club memberships, restaurants and football clubs - both tickets to go see them play and, in some cases, the clubs themselves. You can turn up your nose at this spending if you like. But it is undeniable that rich people have an impact on the economy that goes beyond the tax that they pay to the Treasury. How much? I don’t know. But my instinct would be that multiplier is a positive number and that it’s quite big.
The biggest UK tax risk isn’t that non-doms leave, it’s that they never come in the first place
The last howler that’s being repeated by almost every commentator everywhere is in respect of N. When people say ‘they won’t go’, they’re treating N as if it were some sort of constant. But of course it isn’t. People leaving the UK isn’t the only way N can decrease. We’re talking about rich people here, and rich people tend to be older. And old people die. Over time, they will all die. To sustain a future tax income stream from the megarich, we must entice more of them to leave wherever they live now and come to live in the UK. It’s not obvious to me why a very rich person would want to choose the UK over, say, Ireland or Switzerland, when the UK would tax their worldwide income much more heavily than those alternatives. Yes, tax isn’t everything, for sure, but a six-figure tax difference is enough to make someone think twice. When Richard says non-doms won’t be leaving, he’s totally missing the point. The biggest risk to the Treasury isn’t the non-doms who leave. It’s the non-doms of the future who decide never to come.
Even if this weren’t in the run-up to a General Election, this would still remain a political, emotional debate rather than a rational, economic one. But it’s a shame that, in their rush to make a political impact, so many ordinarily sensible people are abandoning reason for headline grabbing rhetoric.