Is Rachel Reeves inadvertently setting a sly trap which will make foreign investors flee?

Amid the drumbeat of U-turns coming out of Downing Street, one in particular is being viewed with scepticism. This is the decision by Rachel Reeves to sound the retreat on non-doms – wealthy foreigners who enjoy tax advantages by residing in the UK.

When the chancellor first proposed clobbering them there was an outcry – not from the left, who naturally applauded vigorously, but from the non-doms themselves, who are not the sort to go quietly into the night, and, more pertinently, from those who saw it as a signal that Britain was not so open to international investment as was claimed.

They realised that this privileged group brought with them money and employment – something that our new ambassador to Washington appreciated when he said that Labour was “intensely relaxed about people getting filthy rich”.

What Peter Mandelson stated then no longer applied under the Reeves philosophy of targeting the better off, no matter how small the relative sums raised, to shore up the public finances. Every little helps, as she would shrug and say.

The question now is, has she really changed? Yes, Reeves has made a concession, but is it a feint. And once the non-doms have been dissuaded and others seduced into returning or coming, her HMRC attack dogs will be let loose.

It could be a case of the Treasury mandarins upstairs saying one thing and the tax inspectors in the basement thinking quite another. Above them all is Reeves herself.

She’s got a party faithful to placate and a brief to be seen to rake in cash to consider. It’s true that in recent weeks, that aspect has been ditched publicly in favour of a headlong “further and faster” dash for economic expansion, but privately? Come on. The suspicion is that where the non-doms are concerned this is a pretence, designed to stop them from fleeing, so their riches can be plucked at will – that ultimately, votes count more than a few select wealthy types.

As commentator Fraser Nelson found when he submitted a freedom of information request, “the top 0.01 per cent – that’s the top 3,740 taxpayers – are expected to pay over 5 per cent of all income tax this year, an average of £4.5m each. And that’s just income tax. On to that we can add their investments, charitable donations, spending and more”.

These are not non-doms. They represent another, pardon the pun, rich picking. Or, to put it another way, they are golden geese who, if they can be persuaded to stay, have fabulous golden eggs for HMRC.

Reeves is suggesting the non-doms should be subject to a 12 per cent levy instead of the general 45 per cent top-level income tax. Their legal advisers don’t believe this is the end-game and are telling clients to flee to more tax-friendly centres such as Lisbon or Rome or Dubai – or even to the US, where Donald Trump, anxious to enter the race to be competitive for the super-rich, is dangling a $5m “golden visa” for anyone who wants to live and work in the USA.

The Reeves carrot was explained as a straight charge; no strings attached and nothing further. But bitter experience with HMRC, some of which has ended up in the courts, is that what is presented as law-abiding one day is interpreted by the Revenue the next as fiendish tax avoidance, which must be purged.

In doubt is the Temporary Repatriation Facility or TRF, allowing non-doms to bring in income earned overseas at the lower 12 per cent rate, rather than swallow the 45 per cent endured by higher-rate UK taxpayers.

It’s a good idea provided HMRC agrees and does not see it as a “discount” or ruse to be attacked. For instance, some non-doms are pushing as much as they can under the blanket of the benign current system before the end of this tax year, before the 12 per cent comes into effect, thus reducing the pot that will attract the new percentage charge.

Nothing wrong with that, certainly not illegal – provided HMRC acquiesces and does not question whether the tally for the TRF is genuine.

The fear is that a trap is being set which will see the tax collectors pore over every detail, interrogate the transfers and demand 45 per cent. It will then be for a court to decide, which will see some argumentative soul have their personal financial affairs laid bare.

Clarity is required. Reeves and her boss, Sir Keir Starmer, need to keep it simple – to say it and mean it. Her tax hounds must be reined in, or else the government’s growth agenda and Britain will suffer.