15 February 2008

My text this week comes from Robert Chote, the director of the highly respected and impeccably neutral Institute for Fiscal Studies. He was quoted a couple of days ago in the Financial Times as follows: “A weak chancellor, an interfering Prime Minister, a self-interested business lobby and an opportunistic opposition is not a combination designed to deliver good tax reform.”

Harsh? Maybe – but after the headlines this week over tax arrangements for the “non-doms” (does anyone actually know someone who is a non-dom?), which themselves followed similar headlines over a change to the government’s proposals over Capital Gains Tax, you may think that Mr Chote is not being entirely unfair.

So let’s take his list of culprits one by one and try to unpick what’s going on here. (Non-doms, by the way, are foreigners who live in the UK, but who keep the bulk of their wealth outside the UK, and who are allowed to escape paying tax on it, save for those bits that are either earned here or are sent here. There are, apparently, more than 100,000 of them, mostly working in banking, insurance and shipping. They’re called non-doms because the Inland Revenue classifies them as “non-domiciled residents for tax purposes”. )

First, the weak chancellor: well, no one thought it’d be easy running the Treasury while Gordon Brown was Prime Minister. But Alistair Darling, who is one of those rare politicians whose ambition has traditionally been to keep as low a profile as possible, has had more than his fair share of bad luck. And whereas until he took up his current job, he had a reputation at Westminster as a safe pair of hands, he’s now beginning to look like a serial fumbler.

An interfering Prime Minister? The word is that Mr Brown has been taking a very close interest in his successor’s handling of the Treasury brief – no surprise there, then – and let’s not forget that both the capital gains tax and the non-doms proposals were born in the febrile snap-election hysteria of last autumn. Not the best atmosphere, I’d suggest, for drawing up complex tax reform plans.

Next, we come to that self-interested business lobby. M’lud, I call in evidence Digby Jones, currently employed as a trade minister but in a former existence the director of the employers’ organisation the CBI. He broke ranks with his colleagues last week to warn that their proposals on taxing non-doms risked chasing away skilled foreign workers and threatened London’s status as a world financial centre.

Well, maybe, and there again, maybe not. But clearly there was a powerful campaign under way, and on Tuesday, with as much grace as he could muster, Mr Darling (or rather his colleague Yvette Cooper) unveiled some “clarifications”. The proposal to make non-doms pay £30,000 a year in order to retain their preferential status remains in place, but other ideas, like making them declare everything they own, wherever it is, have gone. The Treasury people insist they never meant that to be in the plan anyway; the suggestion is that some over-enthusiastic nosey parkers at the Inland Revenue slipped it in when they thought no one was looking.

Finally, an opportunistic opposition. Fraser Nelson of The Spectator put it this way: “If there is an award for a brass neck of 2008, George Osborne has just done enough to win it. First, he proposes a tax on the non-doms … then Darling nicks it in his infamous magpie budget ... Today Osborne has written an “open letter” to Darling asking him to repeal [it].”

It’s been half term at Westminster this week, so there’s been plenty of opportunity for the opposition and the political correspondents to play Let’s-Get-Darling. I suspect, though, that like many chancellors before him, he’s playing a rather useful role as lightning conductor to protect the PM. He’s got a budget to announce next month, and I predict it’ll be greeted with jeers and scorn, whatever it contains. As Gordon Brown himself used to observe: there are only two kinds of chancellor – those who fail, and those who get out in time.