Darling caves in after storm of criticism over plans to tax high-earning foreign workers

Darling caves in after storm of criticism over plans to tax high-earning foreign workers

Chancellor Alistair Darling yesterday caved in to calls from Britain's business community to scrap key elements of a new tax on high-earning foreign workers.

In a dramatic U-turn, the Treasury said some of the more draconian proposals in the so called "non-dom" legislation would be replaced with clauses placing clear restrictions on the reach of the UK tax authorities.

Ministers were last night braced for criticism from all sides over the affair, which comes after a damaging climbdown over new tax rules on capital gains and the crisis triggered by the Northern Rock debacle.

Opposition MPs accused the government of muddle and harming Britain's reputation in the international business community. Business leaders said the government needed to be more careful in future before rushing through "ill thought out" legislation. It called the move a "victory for common sense".

Unions, which have long campaigned for higher taxes on wealthy foreigners, were dismayed at the move. Before the announcement the TUC leader, Brendan Barber, called on the government to resist intense lobbying by business groups and toughen the legislation before it took effect in April.

After years of demands for a tougher tax regime aimed at City high earners, the government's policy has been in disarray since the Tories caught ministers off guard with their own party conference launch of an eye-catching plan for a one-off levy of £25,000 on non-doms. The government's.....continued below

Advertisement starts

---

---

Advertisement ends

policy emerged weeks later, proposing non-domiciled foreign workers should pay a flat £30,000 fee after living in Britain for seven years. Draft legislation also outlined how these workers would need to provide the government with details of their foreign earnings and pay tax on income and capital gains from offshore trusts.

Amid a growing clamour of dissent from wealthy entrepreneurs, including many prominent Labour supporters, the Treasury said proposals to tax the foreign earnings of non-domiciled workers would be dropped along with demands that they disclose income from offshore trusts.

The acting chairman of HM Revenue & Customs, Dave Hartnett, said consultation with various groups had shown that clauses in the draft legislation "did not reflect the government's intentions".

Labour previously said it was essential that non-doms revealed earnings from offshore trusts and other elements of their worldwide earnings for the UK to judge if they had paid the right amount of tax. The climbdown means the tax authorities will be restricted to taxing the UK earnings of non-doms and money they bring into the country.

There are 120,000 registered non-doms, most of them wealthy City workers and super rich individuals who live in the UK, who keep much of their earnings and assets offshore. A further six to eight million people, mostly on low incomes, are believed to be living in the UK but registered oversees for tax purposes.

Yesterday's move is the second major alternation of big announcements in the pre-budget report. Last month Darling changed plans for an 18% flat rate of capital gains tax.