Margareta Pagano: Would Gordon Brown have taxed Einstein too?

I have never known so many City friends get so angry about anything as they are now over the Government's tax proposals for non-domiciliaries. One Canadian trader friend, who has worked on and off in the UK for 15 years and is now with a big European bank, told me last week that if ministers go through with the £30,000 levy on "non-doms" then he will return to Bermuda, where he has worked for the past few years.

He's well paid by most standards – if not City ones – with a basic salary of £100,000 a year plus the same again as a bonus. He has a small house bought for his retirement in Vancouver, which he lets out, paying tax on the income in Canada. Under the new rules he will have a choice: pay a £30,000 levy, or become liable to UK tax on the rental profit. If he doesn't declare it as worldwide income, he pays the £30,000. He already pays the same income tax on his £200,000 as you or I would.

My trader friend lives outside London, spends a fortune on train travel into the City, sends his daughter to a private school and pays for his family's healthcare. You can see why he is angry; he's not a drain on the state, quite the reverse, as he has more to spend on goods in this country than most. He says many of his non-domiciled City colleagues are also contemplating leaving.

I know many others – French and US bankers and Moroccan hedge-fund traders – who say this will tip them into quitting the UK too. Quite apart from the extra money they may have to pay, they are being made to feel unwelcome.

I don't believe these are empty threats. All these people are highly educated, sophisticated and well travelled; they are the new international nomadic tribe, which migrates easily to the best work. While they may prefer the lycée in Kensington for their children, they would be equally at home in Dubai or Dublin.

About 40 per cent of all investment bankers working in the City are estimated to be non-doms; that's about 40,000 people. Of these it is estimated that about 70 per cent of the City's senior talent is non-domiciled while even more of the younger graduate recruits are foreign, many of them having studied in the UK. How this group is going to be treated under the proposals is crucial because they could find themselves paying the levy after only three years working if their period in education is included in the seven years.

Ironically, this may turn out to be a highly regressive tax, hurting low-paid workers more than the rich. Tax lawyers are already warning it may force the low paid into blatant criminality by tacit non-compliance. Will a South African secretary who earns £30,000 a year but has some income from a flat in Cape Town above the £1,000 threshold declare this? What will a low-paid Portuguese cleaner, who earns say £15,000 a year but has some income from a family business back home, do? As one lawyer said: "Can you imagine that all these people are going to be filling in tax forms declaring this money? Dream on. The poorer people won't fill in the forms and the mega-rich will find ways around it."

All the City people I have spoken to want equity in tax treatment between doms and non-doms. However, what they would like now is more time to work with HM Revenue & Customs and the Treasury to iron out some of the wrinkles.

Gordon Brown and the Chancellor, Alistair Darling, have only themselves to blame for getting into this mess. It was Brown who originally proposed non-dom taxes but then dropped the plans because they were too complicated to police and of no net gain to the Exchequer. He and Darling must now be kicking themselves for overreacting to the Tories' own proposals for non-doms, which led them into this fiasco. It would have been so easy to have said that the issue was still being considered.

Brown's timing is also bad. He's chosen to do this as the rest of the world is opening its doors: the Swiss, the Irish, the Emirates and now the Danes are all offering incentives to foreign talent.

This country has been home to non-doms since Britain was part of the Roman Empire. Now is not the time to close shop, particularly as we have our own brain-drain taking place. It's worth recalling the story of Albert Einstein, who when living here in the 1920s received a fee for some work he had done. Apparently Cambridge dons were outraged that Einstein was not going to have to pay tax because he was a "non-dom". In response, Einstein, who was a Swiss, German and US citizen, offered to pay, but the Inland Revenue refused to accept the money, telling him it was an honour to have him working in the UK.