Two-Tier Tax

Reeves’s reforms, introduced in the last budget, eliminated the ‘non-dom’ rule that allowed certain British citizens to claim that they were non-residents for tax purposes. In essence, non-dom status created a two-tier tax system: one for ordinary UK residents, and one for the globally wealthy, who could afford lawyers, accountants, and loopholes to shield overseas wealth.

Prior to Reeves’s changes, non-domiciled individuals could avoid paying UK taxes on offshore income and capital gains, as well as overseas inheritances. Beneficiaries of this rule included the wife of former Prime Minister Rishi Sunak, Akshata Murty, who avoided paying tax on dividends from her shares in India-based company Infosys.

One particularly juicy part of the non-dom arrangement is that it allowed ultra-rich families to create offshore trusts to shield wealth from inheritance taxes. The rule enabled wealthy individuals who created these offshore entities to avoid paying taxes on the assets in the trusts indefinitely.

Under the new rules, an individual’s worldwide assets will be exposed to inheritance tax at 40%. Naturally, Britain’s elite are incensed at the idea of having to pay what they like to call ‘death duties’. They want the rule reversed and, failing that, many are threatening to leave the UK.

Revolt of the Entitled

Reeves removed the rule because she needs more tax revenue to balance the books if she’s going to stick to her absurd fiscal rule without slashing every department’s budget to within an inch of its life. In some ways, non-doms looked like an easy target. The number of people with non dom status lies in the tens of thousands. But these are some of the most powerful people in the country, and they have started to kick up a huge fuss. This backlash shows just how valuable the loophole really was.

The Financial Times reports that a ‘senior financier’ who is ‘in frequent contact’ with the Chancellor said the government is trying to find a way of ‘backtracking without backtracking’ on the inheritance tax rule. Another ‘senior City figure’ reportedly said that ‘there will most likely be some tweaks to inheritance tax to stop the non-dom exodus’. These are people who are used to getting their way.

Establishment rags like the Telegraph have been charged with amplifying their PR efforts, mindlessly repeating claims that the uber-rich are threatening to leave the UK – and that this exodus represents an existential threat to our economic model. While the Labour government completely ignores the protests of those affected by the two child benefit cap, it has been all ears to the wealthy billionaires upset about having to pay their taxes.

Capital’s B-Team

The way the Labour government has responded to this lobbying campaign provides a valuable insight into how political power really works in the UK. There is a certain constituency in this country, comprised of financiers, corporate executives, and their lawyers and lobbyists, that has the ear of the government. They can schedule regular meetings with the Chancellor and the Prime Minister, where they can express their approval or disapproval over the government’s policy agenda.

Marxists have long understood that political and economic power are fungible. In my book, Vulture Capitalism, I discuss the idea that the capitalist state is a ‘social relation’, in which outcomes within the state tend to reflect the balance of power within society as a whole. While different governments are often subject to pressure from different constituencies, this Labour administration has done its best to sever its links from the labour movement and ordinary members, and to strengthen those with big business and finance.

The end result is that powerful lobbyists have immense influence over government policy. We saw this influence wielded to great effect when Reeves threatened to tax the private equity industry. We see it in the Party’s utter refusal to consider wealth taxation. We can see it in Wes Streeting’s noted links to powerful vested interests in the private health sector. And now we can see it in Reeves’s U-turn on taxing non doms.

Meanwhile, millions of people who are struggling to survive have absolutely no influence with our most powerful politicians. Many of them struggle to raise their day-to-day challenges with their local representatives, let alone influence the decisions of the Prime Minister. Historically, they might have been able to work within the labour movement, or even the party itself, to campaign for change – but Starmer and Reeves’s centralisation of power within the party has closed these avenues off for good.

It is now clearer than ever: Labour is no longer the party of labour. Instead, it has reverted to its role as ‘capital’s B-team’, as James Schneider describes the Party’s new outlook in his book Our Bloc. This shift isn’t merely the result of a change in leadership. It’s the result of the systematic exclusion of workers’ voices in the development of party policy, in favour of the voices of city bankers.