Jeremy Hunt could scrap non-dom status to fund tax cuts in Budget

Jeremy Hunt
Jeremy Hunt is looking into ways of fulfiling tax cut and spending commitments - AP Photo/Frank Augstein, File
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Jeremy Hunt is considering scrapping non-dom status to fund tax cuts for millions of workers in the Budget next week, The Telegraph can reveal.

The move is on a list of revenue-raising options drawn up for the Chancellor and Rishi Sunak, after economic estimates left them with less money than expected for tax cuts or spending pledges.

If it is announced, the Conservatives would be poaching one of the Labour Party’s most prominent tax and spend policies.

It would also reignite the debate about whether scrapping the status would hinder rather than help the economy by driving wealthy foreigners to base themselves elsewhere.

Mr Hunt is understood to have told officials to make sure that Budget policies do not risk the competitiveness of the City of London.

It comes amid a growing row over the Ministry of Defence being denied more money in the Budget, as first revealed by The Telegraph. Penny Mordaunt, the Commons Leader, said defending Britain was “our first duty” after talks with Mr Hunt on Wednesday.

The Treasury is also considering reducing future spending on public services after the general election, changing the assumption from a 1 per cent annual real terms increase to 0.75 per cent instead.

However, there was a boost for pensioners on Wednesday as it emerged the pensions triple lock is set to be included in the Conservative Party’s next election manifesto.

Non-domiciled status allows foreign nationals who live in the UK, but are officially domiciled overseas, to avoid paying UK tax on their overseas income or capital gains.

How much eradicating the status would generate in tax revenue is unclear. Academics last year estimated it could bring in £3.6 billion a year. Labour says its policy, which would instead bring in a tighter tax relief for foreigners temporarily in the UK, would give it £2 billion a year to spend.

No final decision has been taken on whether the measure will be in the Budget, with the final round of economic and fiscal forecasts that are due from the Office for Budget Responsibility later this week set to determine if it is needed.

But the fact the option is in consideration with less than a week to go shows how seriously the Treasury and No 10 are considering it.

Mr Hunt is determined to announce tax cuts in his March 6 Budget, with a reduction in the rate of National Insurance or income tax the leading options.

However, smaller than expected estimates for fiscal headroom – the amount of money left over after hitting the Government’s pledge to get government debt falling in five years – has left limited room for manoeuvre.

Scrapping the non-dom tax status could be politically complicated for Mr Hunt, who spoke out against the change in November 2022, when Labour was proposing it.

Mr Hunt said then he did not think it made sense to abolish the special tax status and insisted it would be the “wrong thing” to do.

He told BBC Radio Four: “These are foreigners who could live easily in Ireland, France, Portugal, Spain. They all have these schemes. All things being equal, I would rather they stayed here and spent their money here.”

However, there could be political benefits. Labour has already announced £2 billion a year of spending based on the savings from abolishing the non-dom status.

That includes £1.1 billion for two million more NHS operations, scans and appointments at evening and weekends; £171 million on new artificial intelligence health scanners; £111 million on helping deliver 700,000 more urgent dentistry appointments, and £365 million to fund breakfast clubs in all primary schools.

The rest would go on so-called “Barnett consequentials”, which is extra funding given to the administrations in Scotland, Wales and Northern Ireland on the back of policy changes with funding implications.

Eradicating the revenue source for those policies would mean Labour would have to explain where the money would come from if it chose to also keep the new tax cuts announced.

Another complexity, however, is the move could put the spotlight back on to the tax status of Mr Sunak’s wife, Akshata Murty, who it emerged in spring 2022 was using non-dom status.

Mrs Murty, whose father lives in India and is a billionaire, then gave up the tax status. Mr Sunak at the time criticised the attention on the issue, hitting back at “unpleasant smears”.

Rishi Sunak's and Akshata Murty
There are fears a non dom announcement could reignite debate about the tax affairs of Rishi Sunak's wife, Akshata Murty - AP Photo/Jon Super

On Wednesday night, a Labour source indicated that could well become their line of attack, saying: “Let’s see if Jeremy Hunt can convince Rishi Sunak to steal another one of Labour’s policies.”

In the 2015 general election campaign, Ed Miliband, who was then Labour leader, surprised the Tories by vowing to abolish non-dom status.

Tory strategists later accepted the announcement had cut through with the public and that they had tried to change the national conversation afterwards with the acceptance it had had a political impact.

The non-dom status rules allow those in scope to avoid paying UK tax on overseas income or capital gains for up to 15 years, provided they do not bring the money back into the UK.


Why axing the non-dom status is no silver bullet

Read more

However, costs do kick in at some point. People who have been living in the UK for seven of the nine previous tax years must pay £30,000 a year, for example.

HM Revenue & Customs figures show there were 68,300 non-doms in 2021. How many of those would stay if the status was abolished has been a long-debated point by economists.

Last summer, academics at Warwick University and the London School of Economics estimated that the Treasury would get an extra £3.6 billion a year from the move.

But some economists argue the flight of wealthy individuals to other nations would significantly limit the financial upside for the Government.

A Treasury spokesman declined to comment.

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