Keir Starmer’s planned tax raid crackdown on non-doms could yield no extra money for the Treasury, it has been reported.
Labour planned to use money raised from wealthy individuals who are registered overseas for tax purposes to invest in public services, including schools and hospitals.
Tax rules are being changed so that the non-doms are forced to pay more to the UK government.
But Treasury officials fear estimates due to be released by the Government’s spending watchdog indicate that the policy may fail because super-rich non doms may leave the UK, according to the Guardian.
The Office for Budget Responsibility (OBR) originally forecast that scrapping the tax break for wealthy foreigners could raise about £3.2bn a year.
However the figure was considered by officials as “highly uncertain” as wealthy people could either leave Britain or find ways to get round new tax rules.
The Conservatives had announced they would be phasing out the tax breaks while in office. Labour said it would go further by attacking loopholes in a bid to raise an initial £1bn in the first year.
The money would be used for school breakfast clubs and more hospital and dental appointments, the Government has said.
However, Whitehall sources told the Guardian they feared the OBR may forecast that the measure would lose revenue rather than raise it, as non-doms could limit their time in the UK to cut the amount of tax they pay.
A Treasury source said ministers would listen to what the OBR said on tax with the priority still being raising revenue from the non-doms.
Chancellor Rachel Reeves has declined to rule out an inheritance tax hike, after Sir Keir Starmer warned of a “painful” Budget in October as the top Labour leaders seek to plug a £22 billion “black hole” they say they inherited from the Tories.
For the Conservatives, Rishi Sunak and former Chancellor Jeremy Hunt have hotly denied bequeathing a financial mess, insisting the UK economy is on the up.
During a visit to New York where he is attending United Nations General Assembly meetings, Sir Keir was asked on Wednesday whether he was “talking the country down”.
The PM told the BBC: “I think if we’re going to have to take difficult decisions that we are, it’s important that we do the diagnosis.”
Sir Keir hinted at potential changes to the Treasury’s fiscal rules when Ms Reeves presents the Budget on October 30, saying he had “long believed in borrowing to invest”, which can act as a “catalyst” for private investment.
The PM and Chancellor had to confront Labour critics at the party’s conference in Liverpool this week, amid much disquiet at their plans to restrict winter fuel payments for pensioners to help fix the UK’s finances.
Andy Haldane, former Bank of England chief economist, warned the Labour leaders not to go too far with their non-dom crackdown.
He told LBC: “This is a time where we need more of that private finance to fuel growth and recovery.
“So if it were me, I'd be being a bit careful in not deterring just the flow of finance we need to get growth going.”
A Treasury spokesperson said: “These reports are purely speculation - the independent Office for Budget Responsibility will certify the costings of all measures announced at the Budget in the usual way.
“We are committed to addressing unfairness in the tax system, which is why we are removing the outdated non-dom tax regime so we can raise the revenue needed to rebuild our public services, and replacing it with a new internationally competitive residence-based regime focused on attracting the best talent and investment to the UK.”
