LONDON – Britain’s opposition Labour Party on Wednesday pledged to scrap tax rules that allow wealthy individuals to legally reduce the amount of tax they pay on money earned overseas if the party wins a national election on May 7.
The change would affect about 116,000 people who live in Britain but who currently are not required to pay tax on income earned abroad, unless they bring the money into the country, under the so-called non-domicile or “non-dom” tax rules.
The plan highlights the centre-left party’s willingness to pitch itself against the wealthy to win over voters and edge ahead of Prime Minister David Cameron’s Conservatives in what polls show is a neck-and-neck election race.
Public anger at the perceived freedom of wealthy individuals to avoid paying British tax has made the issue of non-doms politically potent after a long squeeze on voters’ living standards.
“Why should there be one rule for some and another for everybody else? It is not fair, it is not just, it holdsBritain back. We will stop it,” Labour leader Ed Miliband said in a campaign speech.
“We will replace it with a clear principle: Anyone permanently resident in the UK will pay tax in the same way.”
The non-dom system has also been accused of being easily manipulated to allow British nationals to shift earnings offshore and avoid paying tax. But successive governments have resisted its abolition over fears wealthy foreign business leaders could abandon Britain altogether.
The laws date back to the late 18th century, when they were introduced to protect citizens with assets in overseas colonies from income taxes introduced to fund an expected war with the French EmperorNapoleon Bonaparte.
Labour, which has already promised to tax high-value homes and raise the top rate of income tax, frequently accuses the centre-right Conservatives of protecting the rich at the expense of ordinary voters.
Labour estimated its proposals, which could be implemented by April 2016, would bring in hundreds of millions of pounds to the public purse to help reduce the budget deficit.
But, that claim was attacked by Conservative finance minister George Osborne, who pointed to comments made by Labour’s finance spokesman Ed Balls in January, when he said scrapping the non-dom status would probably end up costing the country money because some people would leave Britain.
“Within hours their policy has unravelled… it is a classic example of the economic chaos, the confusion you get with Ed Miliband,” Osborne said.
Balls said his comments were consistent with Labour’s plan, which includes a temporary exemption, lasting two to three years, for residents who are in Britain for study or work purposes.
Osborne has said he would raise 5 billion pounds per year in the next parliament by clamping down on tax avoidance and evasion, including reforms to the non-domicile rules.