To address the UK’s fiscal challenges and reverse capital flight, Rachel Reeves’ government should implement creative, pro-investment policies, such as reforming non-dom rules and reintroducing an investor visa, rather than pursuing punitive tax measures, says Brandon Lewis
Rachel Reeves’ recent Mansion House speech was full of assurances that she would neither bend nor break in the face of tightening fiscal constraints. Instead, out came the big scissors and with them vows to cut “reams of financial red tape” that’s tied up financial managers in years of onerous regulatory burdens.
But little was said by way of concrete policies focused on long-term growth. And in that silence speculation over just how Reeves plans to address a burgeoning fiscal hole began to fester.
Calls from former Labour Leader Neil Kinnock for a flat two per cent tax on assets over £10m caused a brief, panicked stir in the City that a government running out of options and time would veer left to fill an ever-widening fiscal hole. But despite growing support among backbenchers, the viability of a flat wealth tax has seemed to wither.
That’s a good sign.
Rather than pursue a series of punitive tax measures, the government ought to be pulling out all the stops to drive investment and improve the UK’s international attractiveness as a place to set up, run and grow a business.
On the ground, I hear constantly from business owners who feel alienated and cast aside by Labour’s plans for growth. They are struggling to manage the increase to employers’ national insurance with the uncertain trajectory of the global economy. And when I travel, the UK is mentioned less and less frequently as a prospective locale for investment opportunities. The increase in carried interest on capital gains means much of today’s liquid capital is looking beyond the UK for more favourable conditions.
The quickest way to ensure that doesn’t happen is to tweak Reeves’s fiscal rules on non-dom status. Already, Reeves has shown she’s open to the idea: a tacit admission that, following the changes to non-dom status introduced by the previous Conservative government, Labour pushed the envelope a bit too far.
A quarter of non-doms have called Labour’s bluff
In response to Labour’s rule change, investors and business owners rightly decided their time and money was better spent elsewhere. Today, reports find that nearly a third to a quarter of non-doms have called Labour’s bluff and flown to coop, bringing investments and growth potential with them.
Now, following Reeves’ head nod to a change, investors are nodding right back that such change would be welcome. But Reeves faces an uphill battle.
The non-dom policy is about as popular among Labour’s grassroots as the party’s planned £5bn cuts to social spending isn’t. And now that Labour has backed away from welfare reform, any about-face on non-dom status will necessitate a balancing move to avoid the grumblings of dissatisfaction that come with very nearly burning up the goodwill of a vocal base.
While tricky, it’s a situation ripe for creative ideas and impactful changes to attract back those who have left.
Take the United States where the ‘Trump Card’ visa offers a quick, streamlined avenue for individuals and businesses looking for legal residency. Priced at a cool $5m and accompanied by a complementary gold card, nearly 70,000 applicants have joined the waiting list. If the numbers are right, that’s $350bn brought in from business and individuals looking for opportunity in America.
It’s positive interventions like these that attract those with the skills, networks and interests in building new opportunities. The government ought to be looking at similarly creative avenues in the UK. While the Tier 1 investor visa has been closed since 2022, it brought in over £17bn.
Such a visa framework warrants reopening, and quickly.
The government would be wise, as they have already signalled, to include strategic priorities like AI and life sciences in any such visa scheme. But it should also be open about letting investors streamline investments in high-growth sectors; too restrictive an approach will turn off potential applicants. The government could also provide tax relief to businesses who commit to upskilling UK workers and provide measurable relief for companies actively reinvesting in the key sectors like housing.
We know the UK remains an attractive place for investors and those willing to build businesses and create jobs. But without creative (and quick) alterations, capital flight will accelerate, faster than any road or railway can be built.
Brandon Lewis is a former minister and Conservative party chairman