Finance Bill (Second sitting)

Yuan Yang Excerpts

Committee stage
Tuesday 28th January 2025 Public Bill Committees

[Gareth Davies]

Currently, a person who is UK resident but not UK domiciled pays tax on any UK income and gains but can choose for their non-UK income and gains to be taxed on a remittance basis. Part 2 of the Bill provides for the abolition of non-domiciled status from April 2025, as the Minister points out, and for its replacement with a new regime for the taxation of foreign incomes and gains on the basis of UK residence. It therefore terminates the current tax regime for those who are resident but not domiciled in the UK, while creating a temporary repatriation facility for historical foreign income and gains to be brought into the UK over the next three years. Those changes will also be applied to trusts under the Bill and inheritance tax will also be brought into the new, residence-based system.

Although the shape of the overall package is much the same as the one the Conservatives announced in the spring Budget 2024, there are a few notable differences on the detail. Before I move through the chapters—we will spend a bit of time on that, starting with chapter 1—I will first provide some context by noting that, net of the reforms we announced in March, Labour’s adjustments to the new regime are forecast to raise £12.7 billion over the next five years. This means the measure we are considering is the second biggest revenue-raising new policy in this entire Budget. Labour’s adjustments to the temporary repatriation facility alone account for £10.6 billion.

These are significant sums, but also highly uncertain, according to the OBR. There is significant uncertainty in particular around the behavioural responses and the size of the tax base, according to the OBR’s assessment. The OBR also says it is unclear to what extent inflows to the temporary repatriation facility are additional over the long term rather than bringing forward disposals which would otherwise have attracted full rates of taxation.

When the second biggest revenue-raising new policy in a Budget is so uncertain, according to the OBR, bond market jitters come as no surprise. The emphasis Labour has placed on this policy, which makes up a massive chunk of the Bill, is compounding its conundrum ahead of the OBR’s March forecast. It exacerbates fiscal instability by adding to the risk that revenues will not be as high as anticipated. This brings us back to the same old questions we have been asking, including in the Chamber today: which taxes will Labour have to raise if there is a shortfall, or which services will they have to cut? The Minister will say that we need to wait for the OBR’s revised forecasts, but will those include an update on these highly uncertain figures?

Turning specifically to chapter 1, clauses 37 and 39 introduce the new four-year 100% relief on eligible foreign income and gains for those arriving in the UK who have not been UK tax residents in the 10 tax years immediately prior to their arrival. I acknowledge that that mostly mirrors the proposals we put forward in the March Budget 2024 but would be grateful if the Minister could none the less address the following points.

[Yuan Yang (Earley and Woodley) (Lab)]

The hon. Gentleman raises the question of estimates around the level of revenue that would be generated by this important measure. Is he familiar with the work of Andy Summers and Arun Advani at LSE and the University of Warwick? Three years ago, in 2022, they modelled the effect of the 2017 tax reforms on non-doms and used that as a basis for statistical estimates for the proposal before us. While economics is a science that does to the best it can with the data available, I think there are some quite substantial measures available on the table for this proposal.

[Gareth Davies]

I am afraid I have not taken the time to read the academic reports, but I greatly value and emphasise the work of the OBR, which the Conservatives established in government. The new Government have taken it forward and are already seeking to bolster its impact on the Treasury’s work. If the hon. Lady will forgive me, it is the OBR’s work that I look at, and that work says that this budgetary measure is highly uncertain. As I was pointing out, that leaves questions for markets and for the Labour parliamentary party when it comes to which taxation will have to go up and what spending will be cut if that figure is not met. I will leave that to the Minister to address.