Press Release: Political move to scrap non-doms ignores all the evidence, new paper argues

For further comments or to arrange an interview, contact Head of Communications Kate Andrews: kate@adamsmith.org | 07584 778207

Labour’s non-dom policies risk cutting off the country’s nose to spite its face:

  • There may be over a million non-doms in the UK, contrary to Miliband’s claim that there are 116,000; most of them are not rich people but foreign workers and students.
  • The UK’s non-dom system is not unique; countries like Australia, Japan and China all have tax systems that focus on local income for non-permanent residents.
  • The existing crackdowns on non-doms introduced by Labour (and supported by the Tories) have ended up particularly hurting less well-off non-doms (e.g. migrant doctors) while hitting the super-rich comparatively less.

A new briefing paper from the Adam Smith Institute debunks the oft-quoted claims being made by politicians about non-doms and highlights the potential financial risks associated with Labour’s proposed changes to the rules.

The paper “Non-Sense: examining the arguments and rhetoric around non-dom tax provisions” explains how Miliband’s proposed changes to the tax rules could cut government revenue, drive away investors and risk hurting middle-income migrant workers registered as non-domiciled in the UK.

The paper argues that recent reforms to non-dom tax laws, whereby one has to pay £30k after seven years of residence in order to be taxed on the remittance basis, has ended up hurting relatively less wealthy non-doms and has done very little to the very wealthy ones.

The further changes proposed by Miliband could push Britons to become ‘domiciles’ more quickly in other countries and deprive the UK the inheritance tax such people would have paid had they been domiciled in Britain. These changes would also affect many other parts of the law, such as family law, which depend on domicile status; such changes would have far-reaching implications, such as disputes over guardianship of children.

The paper explains that the status of non-dom is affiliated with any person who does not intend to remain in the UK indefinitely. International hedge fund managers, transfer students from Kenya, and Indian doctors working for the NHS are all considered non-doms. Potentially there are over one million non-doms residing in the UK, not 116,000 as Miliband claims. Most of these residents are not wealthy, but rather normal earners and students.

It is also not the case that the UK’s non-dom system is virtually unique in the world. Several former British colonies have exactly the same system as the UK, for example Ireland, Malta and Jamaica. Other countries such as Australia, China and Japan tax only local income for non-permanent residences as well.

Head of Research at the Adam Smith Institute Ben Southwood said:

Cracking down on non-doms may sound nice but proposals that sound nice aren’t always good policy.

Miliband’s scheme risks making both the UK and the Treasury poorer and less fair.

Scrapping non-dom status does make it easier for the Treasury to claw in the foreign earnings of people who intend to stay in the UK temporarily, but it also makes it harder for them to keep a hold on Brits who leave intending to come back.

Thankfully policymakers are not so easily swayed and MPs are often effective gatekeepers to populist wheezes – there is at least a chance this one will be stopped as well.

Notes to editors:

Read “Non-Sense: examining the arguments and rhetoric around non-dom tax provisionshere.

The Adam Smith Institute is a free market libertarian think tank based in London. It advocates classically liberal public policies to create a richer, freer world.

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ASI briefing paper “The Ties that Bind” features in Yorkshire Post article and editorial

New ASI briefing paper ” ” features a Yorkshire Post article as well as today’s editorial.

Article:

Increasing levels of racial diversity driven by immigration to British cities have very little negative impact on social cohesion, according to a repot which appears to contradict claims that migration undermines the country’s social fabric. 

The Adam Smith Institute concluded that higher levels of diversity can have a slightly negative impact on trust levels – but when it comes to other measures of social cohesion, including civic participation and volunteer work, there is virtually no evidence to suggest a negative effect.

The Institute reviewed literature on the subject which looked at communities in the United States, Europe and the UK.
It found that if other factors are accounted for – including economic deprivation – the negative relationship between diversity and cohesion often disappears.

While research from the States found a clear negative relationship between immigration and social cohesion, research in Europe found no negative impacts.

Research in London had found that once economic deprivation is controlled, higher levels of ethnic diversity actually have a positive effect on social cohesion.

The research appears to contradict claims that immigration must be restricted as it undermines the country’s social fabric. The paper does comment on Bradford or other Northern cities which saw disorder in 2001.

Continued p. 2, Yorkshire Post.

Editorial:

Coincidentally, Sir Keith’s comments come on the day that the Adam Smith Institute claimed that greater ethnic diversity in the UK has not had a negative impact on community cohesion. This refutes Mr Farage’s alarmist assertion that children can no longer play football in the streets of some towns because of concerns about immigration. The think-tank also takes Ukip to task for claiming that migrant workers are taking the jobs of people born in Britain; it says immigrants contribute more to Britain’s debt-laden finances than they take out in benefits.

It is a compelling argument which should be heard before any post-election caps or quotas have a counter-productive effect on the economy. The problem for the country’s political elite is that they find themselves in the unenviable position where Mr Farage’s party is making all the running on this issue.

Read the full comment here.

The paper, “The Ties that Bind: An analysis of the relationship between social cohesion, diversity, and immigration”, is a comprehensive review of the academic literature on the relationship between immigration and social cohesion in the Europe, the UK and the United States.

It concludes that higher levels of diversity only lead to a slight negative impact on generalized trust within UK communities; however, there is virtually no evidence to suggest that diversity undermines other measures of social cohesion, including civic participation, trust in authority and volunteer work in the UK. Furthermore, the paper finds that if other factors are controlled for – including neighborhood status and economic deprivation – the negative relationship between diversity and cohesion often disappears.

Mythbusting Nigel Farage on immigration – Ben Southwood highlights ASI report in CityAM

Head of Research Ben Southwood writes for CityAM on new ASI briefing paper “The Ties that Bind: Analysing the relationship between social cohesion, diversity and immigration”:

The political scientist Robert Putnam famously found that Americans “hunker down” in the face of social diversity, doing less in the community and trusting people less – even their own compatriots.

When Nigel Farage suggested that one reason kids tend not to play on the street nowadays was immigration, he was voicing a common concern: that immigrants undermine social trust and social cohesion.

Trust and social cohesion are important on more than just one level – they are a crucial correlate of output, living standards and growth. If immigration did undermine trust, it would be a major argument against it. But it’s not clear that the data can support this objection, whatever people’s anecdotal experience might seem to show.

A new Adam Smith Institute briefing paper out today “The Ties that Bind: An analysis of the relationship between social cohesion, diversity, and immigration” looks broadly to see if Putnam’s result is held up by the wider research. There is some (albeit conflicting) evidence that immigration and diversity undermine generalised trust – how much people in society trust other random people in society.

Read the full op-ed here.

The paper, “The Ties that Bind: An analysis of the relationship between social cohesion, diversity, and immigration”, is a comprehensive review of the academic literature on the relationship between immigration and social cohesion in the Europe, the UK and the United States.

It concludes that higher levels of diversity only lead to a slight negative impact on generalized trust within UK communities; however, there is virtually no evidence to suggest that diversity undermines other measures of social cohesion, including civic participation, trust in authority and volunteer work in the UK. Furthermore, the paper finds that if other factors are controlled for – including neighborhood status and economic deprivation – the negative relationship between diversity and cohesion often disappears.