Government seizes the initiative on non-doms

The Government pledged yesterday to rush through a law before the general election to ensure that MPs and peers pay full taxes in Britain.

Harriet Harman, the Leader of the Commons, told MPs that there should be "no representation without taxation" and said Parliament should set an example. "We are going to bring forward legislation to make sure that people are domiciled, resident and ordinarily resident to sit in this House or to sit in the House of Lords," she said.

Ms Harman was standing in for Gordon Brown at the final session of Prime Minister's Questions of the year because he is at the Copenhagen summit.

Government sources said later that the most likely method to achieve the pledge was through an amendment to the Constitutional Reform and Governance Bill now going through Parliament. It is unclear whether ministers will table their own amendment or give their backing to one put down by the Tory Opposition. David Cameron's promise to ensure that all MPs and peers pay full UK taxes was made on Sunday in an attempt to defuse the controversy over Lord Ashcroft, the deputy Tory chairman and major party donor who has business interests in Belize and refuses to disclose his tax status, and Zac Goldsmith, the environmental campaigner and Tory candidate in Richmond Park, who has recently given up his status as a "non-domicile" for tax purposes.

Mr Cameron's move misfired when Labour revealed that the Tory amendment would not force MPs and peers to pay tax on all their foreign earnings. But the Opposition has now tabled a new version making it clear that such income would be covered. Ministers are now taking advice to make sure the latest version would be "watertight" after accusing the Tories of deliberately trying to leave a loophole in their first proposal.

It is believed that ministers originally planned to bring in a law forcing all MPs and peers to declare their tax status. That appears to have been beefed up following Mr Cameron's call on Sunday for a ban on any not paying full UK taxes.

Vince Cable, the Liberal Democrat Treasury spokesman, welcomed the Tories' initiative. Speaking with the protection of Parliamentary privilege, he told the Commons: "Can I welcome the fact that there is such enthusiasm from turkeys voting for Christmas and suggest that the minister gives immediate effect to their wishes by bringing in an amendment to the Constitutional Reform Bill so that non-doms like Lord Ashcroft can leave Parliament immediately." Ms Harman said: "I would like to, at the risk of being accused of being partisan, complain about the Conservative Party."

Lord Ashcroft "made a promise to the Honours [Scrutiny] Committee that he would make his tax affairs onshore", she said, and she challenged the Tory frontbench to confirm what his status now was. But she was interrupted by the Commons Speaker John Bercow, who told her: "We needn't pursue that point any further."

Tory officials welcomed Ms Harman's pledge to change the law, saying she was following Mr Cameron's lead. But Labour sources expressed fears that the Tories might yet scupper the Bill, which could run out of Parliamentary time when next year's general election is called. Which elements of the Bill could be rushed through before polling day would be a matter of negotiating between the main parties.

A Downing Street spokeswoman said the Bill was "a possible vehicle" for legislation to require all MPs and peers to be UK taxpayers. She added: "The Government has supported the principle that all MPs and peers should be UK taxpayers, as last year's White Paper made clear. The Government legislated in the summer to require people making large political donations to declare they are resident and domiciled in the UK for tax purposes."

She added: "The Government has also proposed that members of a reformed second chamber should be full UK taxpayers. We are going to bring forward legislation to ensure that people sitting in the Commons or Lords are treated as ordinarily resident and domiciled in the UK."