Is this the moment that Rachel Reeves put ‘what works’ before dogma?

This could be the moment that the Labour government started to find its feet. Rachel Reeves, the chancellor, is “ready to water down” her tax raid on non-doms because the Treasury fears that it may “fail to raise any money”, the Financial Times reported on Thursday.

The timing of this realisation is interesting, the day after the end of the Labour conference at which the news might have been greeted with howls of “betrayal” from the marginalised, but still vocal, usual suspects.

But what is important about this U-turn is that it means the cold light of realism has been allowed to penetrate the pie in the sky slogans of Labour’s pre-election economics.

It was pointed out before the election that the prospect of raising £1bn a year by “abolishing non-dom status” was implausible. Indeed, it was pointed out as long ago as in 2015 by Ed Balls, the shadow chancellor, who explained: “It probably ends up costing Britain money, because there’ll be some people who will then leave the country.”

Still, in opposition, needs must. Reeves, Balls’s successor, needed “top” sources of revenue to pay for Labour’s manifesto promises. That is “top” as in “Tax Other People”. VAT on school fees was one; whacking non-doms was another.

Reeves thought both tax rises were electorally bombproof, in that they involved taxing rich minorities and the Conservatives couldn’t steal them, because private-school parents were their voters and the prime minister was married to a non-dom.

She turned out to be wrong about the second, because Jeremy Hunt announced new restrictions on non-dom tax privileges in his March Budget this year. These restrictions were planned to start taking effect next year, and Hunt managed to persuade the Office for Budget Responsibility that they would raise £2.7bn a year.

That meant Reeves had to go into the election promising to restrict non-doms even more, raising an additional £1bn a year. It had all become a bit silly, but it didn’t seem to matter because the Tories were on the ropes and Wes Streeting had a stock answer when asked how his NHS plans would be paid for.

Now the whole house of election-campaign cards has come tumbling down, because the Treasury has re-run its analysis and concluded that Balls was right after all. If you tax the internationally mobile super rich too heavily, they will go elsewhere. It turns out that the simple cry of the anti-capitalists in Labour fringe meetings – “tax the billionaires” – fails to raise any revenue.

It is not even clear now how much of Hunt’s changes Reeves will keep. She ought, really, to start from scratch. The very idea of a “domicile of origin” for tax purposes is archaic and should be abolished. It depends on where your father was “domiciled” when you were born. How that is compatible with sex equality law I do not know.

The chancellor should get rid of it and replace it with a modern tax regime that seeks to attract the mobile rich to the UK in return for a fair tax contribution.

The principle of a “Robin Hood” tax is simple. Either the mobile rich can live in Britain and pay British taxes on all their worldwide assets, or they can pay a flat fee and keep their foreign holdings out of British tax. That annual payment could be as high as £500,000, set to maximise tax revenue without driving away people who bring investment and jobs to the UK. With a 20-year contract, it would offer stability for the rich, and tax revenue for public services for us all.

Thus we would tax the rich in a way in which they will feel the sting but be happy and stay, and everyone gets the benefit of their spending and investment.

It would seem that Reeves understands that, which is why this is a significant moment. She is prepared to face down those in her party whose instinct is to squeeze the rich for the sake of it. But she knows that it will not help the poor if business leaders take their money and jobs out of the country. What matters is what works.

Of course it is important that the tax burden is shared fairly, so that the better off pay proportionately more, and Keir Starmer hinted in his conference speech that the Budget would indeed contain tax rises for the rich. “The cost of filling that black hole in our public finances” he said, “That will be shared fairly.”

But there is no point in putting up taxes that yield no extra revenue. In fact, that would be worse than pointless because it would give the impression that the Labour government is hostile to wealth, aspiration and job creation.

Starmer and Reeves urgently need to focus their attention. Only two things matter to this government’s survival: getting the economy growing and fixing the NHS. Everything else is a distraction. Yes, some taxes are going to have to rise, but a punitive tax on non-doms would hold back growth.

This U-turn suggests that the chancellor is prepared to put the national interest before dogma – even if it is her own recent dogma. That is a welcome sign of political maturity.