Departure of Non-Doms Might Result in £12.2bn Loss for the Treasury
Title: The Impending Financial Shift: Non-Dom Exodus Threatens Treasury's Fiscal Plans
Chancellor Rachel Reeves' decision to axe tax breaks for non-doms might lead to billions in losses for the public coffers, suggests latest research, posing a blow to the Treasury's financial strategies.
Reeves didn't shy away from her manifesto promises by axing tax breaks for mega-rich non-domiciled individuals last year's Autumn Budget. The Office for Budget Responsibility (OBR) initially predicted this move would generate an additional £10.3bn in tax revenues this year.
But economists from the Centre for Economics and Business Research (Cebr) have proposed a contradictory picture. Even if non-doms continue to reside in the UK post changes, the Treasury could only rake in gains of £2.5bn during the first year, per Cebr's forecast – a figure that could leave OBR economists red-faced.
Researchers warned that if at least a quarter of the UK's non-doms decide to decamp, the Treasury would start losing big time. If half of the non-dom population depart by 2030, the government's revenues could plummet by a projected £12.2bn.
The Cebr noted that the average non-dom contributed 21 times more income tax than the average UK earner and significantly more in national insurance contributions and capital gains taxes. Revenue drops due to non-dom departures would pile extra strain on public finances, given Reeves' decision to hike taxes on employment and slash welfare spending to maintain a small £9.9bn fiscal headroom.
The findings, commissioned by pro-enterprise campaign group Land of Opportunity, got the heat from shadow business secretary Andrew Griffith. He accused Reeves of stumbling over her numbers. "Business pioneers leaving the UK for greener pastures signals nothing but disaster for our economy. And for us, all that's left is to cough up higher taxes to compensate for the shortfall," Griffith said.
The Conservatives, under a new leadership, are vowing to stand by businesses and wealth creators, stated Griffith.
Cebr managing economist Sam Miley emphasized that the government is heavily dependent on convincing non-doms to stay. "For every non-dom ditching the UK, the Treasury is not just losing the tax revenue from their income and gains, but also their day-to-day expenditures. Given that non-doms are typically high-spenders alongside high-earners, the financial implications can be grave," Miley said.
Cebr's assessment diverges from the OBR's assessment of the reforms. A Treasury spokesperson defended, "We don't concur with these figures. The OBR has confirmed that changes to the regime will generate £33.8bn over the next five years."
The concern isn't merely hypothetical. Several high-profile non-doms have vacated the UK already, with many more planning to move to tax haven jurisdictions. Goldman Sachs' senior banker Richard Gnodde is one such example; he recently announced his move to Milan to evade the non-dom reforms. Egyptian billionaire Nassef Sawiris and steel tycoon Lakshmi Mittal have also hinted at their UK exit plans.
The Treasury's Perilous Financial Scenario
Prospective Revenue Deficits vs. Real-life Likelihoods
While official forecasts, such as those from the OBR, anticipate £33.8bn in revenue over five years from the non-dom reforms, these projections could underestimate the potential losses if a significant exodus occurs. With economists warning of billions in losses for the Treasury if non-doms flee the UK, the government is dancing close to the precipice.
Potential Financial Impact
Economists caution that actual receipts might significantly fall short of expectations if non-doms opt to leave in large numbers. For instance, the Cebr predicts that if a quarter of non-doms depart, the Treasury could incur hefty losses, with potential increases as more leave. These losses also extend beyond tax revenues, encompassing reduced VAT receipts and reduced economic activity due to fewer high-net-worth individuals.
The financial impact may already be visible; despite the changes yet to take full effect, tax revenues from wealthy individuals shows a decline in the initial three months of 2025. There are already whispers that some wealthy individuals could be thinking of or exploring options to relocate to avoid increased taxes.
- The impending financial shift due to non-doms' potential exit poses a threat to the Treasury's fiscal plans, according to latest research.
- If a quarter of the UK's non-doms decide to decamp, the Treasury could face heavy losses, warn researchers.
- The financial implications of non-doms departing the UK can be grave, as they contribute significantly more in taxes compared to the average UK earner.
- The Treasury's fiscal scenario may be precarious, as actual revenue receipts could significantly fall short of expectations if a significant exodus occurs, as indicated by economists.
