The government’s ignominious retreat over modest proposals for taxing super-rich, non-domiciled foreigners – the so-called “non-doms” – is a further sign of New Labour’s confusion and decline as the party favoured by big business. After a decade of helping to turn London in particular into the playground of the rich, the government is losing its touch to such an extent that there are clear indications that business is turning back to the Tories.
This is bad news for New Labour, which was created by Blair and Brown as the party that would promote the alleged virtues of the market economy and make Britain the most attractive place to operate and live in. Now London in particular is flooded with Russian oligarchs – people who acquired for a song state property – and billionaires from around the globe. The super-rich are even courted by people like Mayor Ken Livingstone, who views non-doms as an inevitable by-product of globalised finance capitalism.
New Labour’s current mess follows a clumsy attempt to trump the Tories who, ironically, have spoken out against the excesses of the non-doms as part of their populist politics. On 1 October, George Osborne, the shadow chancellor, unveiled plans to introduce a flat annual levy of £25,000 on all non-doms, who number about 150,000. Not long after, chancellor Alistair Darling, the chancellor, announced draft legislation that outlined how non-doms would need to provide details of their foreign earnings and pay tax on income and capital gains from offshore trusts.
This led to an outcry in the City and was even attacked by a government minister. Lord Jones – formerly head of the employers’ confederation – criticised the proposal only last week. He remains a minister. Yesterday, the Treasury announced a U-turn on the legislation. Its humiliating retreat comes in the wake of a climb-down over new tax rules on capital gains tax (CGT) and the crisis triggered by the Northern Rock debacle.
The Brown government is now in a desperate race to recover its standing with business – and it may be too late. David Frost, the director-general of the British Chambers of Commerce, claims that government "just lost the plot" over the autumn. Business, he said had bought strongly into Gordon Brown's pro-enterprise agenda when he was chancellor. "He couldn't get up without talking about enterprise and business, comparing ourselves to the States.
"When the announcement came on CGT, my phone literally started buzzing within half an hour of him sitting down and it didn't stop for three weeks. I don't think they understood how much damage that had done. Businesses started to ask, what is going on? Does the government understand business under the new regime? Non-doms is equally an issue. People are asking, are we giving the message that the UK is a place where they can do business?" A BCC survey of its members last month found that 41% had more trust in David Cameron and shadow chancellor Osborne, against 19% for Brown and Darling.
So while what Vince Cable, the Liberal Democrats' treasury spokesman, describes as “outrageous special pleading from the City” with “wildly exaggerated accounts of the damage that would be done by taxing non-domiciled residents” is successful, the vast majority of the population face tougher choices. Food, transport and fuel bills are rising at their fastest rate for almost 20 decades while incomes are static or falling in real times. More than third of an average wage goes in deductions in return for worsening public services, leaving the non-doms laughing all the way to the bank.
AWTW communications editor