Jeremy Hunt could scrap ‘non-dom’ tax status in next week’s Budget

Labour is preparing for Jeremy Hunt to steal its flagship policy and scrap the non-dom tax loophole in next week’s Budget.

The chancellor is considering an emergency move to poach one of Sir Keir Starmer’s key plans, which underpins Labour’s biggest spending commitments.

The measure would leave the opposition scrambling for new sources of cash to fund pledges on the NHS and school breakfast clubs.

The chancellor is also reported to be considering extending the windfall levy on North Sea oil and gas – another Labour policy – to fund tax cuts elsewhere.

Karl Turner, Labour’s shadow solicitor general, told The Independent that the Tories are “desperate”.

And a shadow minister told The Independent that “whatever they announce, we will be ready” to respond.

The figure said they were not surprised by the government’s apparent change in stance on the non-dom loophole, claiming they have “never had a strong argument about why they were keeping it”.

They added: “It looks like they are running out of other options and are desperate to find room for tax cuts to please the right of the party.

“There are so many other examples where they have taken Labour’s ideas… but let’s see what they actually announce and what they do with the money they take from the most wealthy, I think people will be looking at those political choices.”

And Mr Turner said: “It’s come to something when the Tories’ are so desperate that they start talking about hiking taxes on friends and family of the prime minister.”

The non-dom tax loophole, which lets foreign nationals living in Britain avoid paying tax on overseas earnings, was thrust into the spotlight when The Independent first revealed that Akshata Murty, Rishi Sunak’s wife, had used it to save potentially millions of pounds.

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Ms Murty, whose family business is estimated to be worth around £60bn, later said she would no longer claim the status on her worldwide earnings. At the time, she said she did not want her tax status to be a “distraction for my husband or to affect my family”.

But Labour has ruthlessly attacked the PM over The Independent’s revelation, with Sir Keir accusing Mr Sunak of desperately holding onto his “beloved non-dom status”.

And the latest row erupted as it emerged Mr Hunt is considering scrapping the loophole in a bid to fund national insurance or income tax cuts.

The chancellor is looking at the move ahead of next week’s Budget, in what would be a major blow to Labour’s post-election spending plans.

Sir Keir has promised to pay for NHS reform and school breakfast clubs with the money it would raise by scrapping the tax break.

It believes the move would raise around £2bn, but if Mr Hunt scraps or drastically alters the non-dom regime, Labour will have to find the money to fund the pledges elsewhere.

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Mr Hunt has been handed a list of revenue-raising measures that would help him fund further pre-election giveaways to win over voters.

He is prepared to take the move if pre-budget forecasts deteriorate in the run-up to next Wednesday’s statement. But a Treasury source told The Independent Mr Hunt would not do anything that risked undermining the competitiveness of the City.

Mr Sunak has been dismissive of Labour’s plans to scrap the loophole, describing Sir Keir’s attacks on the status as “this non-dom thing”.

And Mr Hunt has said abolishing the tax break does not “make sense” and would be the “wrong thing” to do.

Asked about the idea, he told BBC Radio Four: “These are foreigners who could live easily in Ireland, France, Portugal, Spain. They all have these schemes. All things being equal, I would rather they stayed here and spent their money here.”

Labour mocked the potential U-turn on the tax status, with a source saying: “We will wait and see whether the chancellor manages to get this past Rishi Sunak given his family finances.”

But a senior Labour MP said the prospect of Mr Hunt stealing the policy shows “just how unambitious Labour is being”.

“Given the scale of the challenges facing the country – the fact they’re being matched on fiscal policy by one of the most socially and economically regressive right-wing parties in the history of the UK,” the figure said.

They also said the idea showed how “desperately bad” the economic outlook is and how little financial room Mr Hunt has.

Labour has said it will not reverse Mr Hunt’s tax cuts if it comes to power after the election, expected this autumn, meaning the party may have to find other ways to fund its existing spending pledges.

It has committed to spending £1.1bn on NHS operations, scans and appointments, £171m for health scanners, £111m for dental appointments and £365m for primary school breakfast clubs.

The remainder would be spent on additional funding for the Scottish, Welsh and Northern Irish governments.

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The plans emerged as shadow chancellor Rachel Reeves warned Labour is set to inherit the worst economic situation of any incoming government “since the Second World War” if the party comes into power at the next general election.

Speaking with Sky News, Rachel Reeves pointed to “debt interest payments, growth, living standards and taxation” as she accused the Conservative Party of “burning the whole house down” during its time in government.

She told the broadcaster: “This is the worst inheritance any incoming government will have had since the Second World War in terms of debt interest payments, growth, living standards and taxation.

“(Former chancellor) George Osborne said in 2010 that they were going to fix the roof. What they’ve done is smash the windows, broken the door down and are burning the whole house down.

“That is the reality for whoever is prime minister and chancellor after the next election – that’s the inheritance that whoever forms the next government is going to have to deal with.”

Ms Reeves signalled she would potentially replicate any impending tax cuts, but they would need to be in line with her fiscal rules.

She said: “Fiscal responsibility is non-negotiable for me. The sums have to add up.

“Everything will be subject to the fiscal rules I’ve set out.

“I want taxes on working people to be lower. But it has to be affordable.”

Next week’s Budget is one of the last major set pieces for the government before voters head to the polls.

With the Conservatives facing a heavy defeat, Mr Hunt is under pressure to find the cash for a cut to income tax or national insurance.

He is said to prefer a national insurance cut, following a reduction in the tax announced in November’s budget, as well as a vape tax.

It is thought he may introduce a “vaping products levy” to be paid on imports and by manufacturers to try to make the habit unaffordable for children.