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Taxation: Non-domiciled Residents

11.26 am

Lord Mitchell asked Her Majesty’s Government:

Lord Davies of Oldham: My Lords, the Government’s review of the rules on residence and domicile that affect the UK tax position of individuals is ongoing. In conducting the review, we are considering the key principles of fairness, support for the UK economy, and simplicity and ease of use of the system.

Lord Mitchell: My Lords, I thank my noble friend for that Answer. Many of the super-rich permanently living in this country are classified as non-domiciled residents. That means that they pay no tax on income earned abroad. With careful tax planning, which they can easily afford, they end up paying little tax either abroad or in the UK. Does my noble friend think that fair? Secondly, can he give some indication of the loss to the Exchequer as a result of that concession?

Lord Davies of Oldham: My Lords, as the whole House will recognise, there is an element of unfairness in the most graphic forms of this, such as when a wealthy individual identifies that he can pay tax at a lower rate than his cleaner can. However, these are difficult issues. We recognise the important part that our taxation arrangements play in the development of the UK economy. No one is being accused of breaking any tax laws or bending any of these rules; they are using the law as it stands. Our task is to see how we can make the law fairer, while guaranteeing that all those who invest and develop business in this country are treated appropriately.

Lord Tebbit: My Lords, could such a person—not British perhaps, and not domiciled in England—send their children to a university in Scotland and not have to pay the fees?

Lord Davies of Oldham: My Lords, the student is living in England and has been in English education, so when they go to Scotland they are in the same category as all other students in England. All university systems have to adopt a particular strategy for students who are overseas and therefore in the category of non-domiciles. The general position in all university administrations is that such people pay. The difference in Scotland is that they are bound by European arrangements also.

Lord Barnett: My Lords, there is, of course, a big difference between normal domicile and domicile for tax purposes. Is my noble friend aware that many professional people are concerned about the abuse of

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dubious claims, which are often accepted, of being domiciled for tax purposes? Would he care to publish or give me now a clear position, if there is one, of the tax position in this area, because there is concern everywhere within the system that it is being seriously abused?

Lord Davies of Oldham: My Lords, of course the tax authorities apply tax accurately and are, therefore, working to a clear set of rules with regard to this situation. But, as my noble friend indicated, domicility is not a tax concept; thereby hangs the difficulty, of which the Government have been aware for some time. Our domicility rules go back to the 19th century and all Administrations since then have been governed by this position. We are of the view, for all the reasons that my noble friend advanced, that the issue requires revision and we are carrying out a review of the position.

Lord Newby: My Lords, does the Minister accept that the review to which he referred started in 2002, that most people who have looked at this issue believe that no action whatever is being taken and that the concept of a review is being used as a fig leaf for the Treasury not grasping this particular nettle? Can he assure the House that the review will now be brought to a speedy conclusion and its results published?

Lord Davies of Oldham: My Lords, I am wrestling with the image of coping with nettles when one is wearing a fig leaf. As far as the review is concerned, a report in this autumn’s Pre-Budget Report will indicate the stage that we have reached, but we all recognise the degree of public concern about this issue.

Baroness Gardner of Parkes: My Lords, I declare an interest as being non-domiciled—I retain my domicile of origin, which is Australia, although unfortunately I am not in the super-rich category. Is the Minister aware that once you have lived in this country for 17 of the past 20 years, you are deemed to be domiciled and are caught in every possible way for taxation, including inheritance tax, which does not exist in Australia? Is he also aware that in Australia I have to pay 48 cents in the dollar, which is higher than the 40 per cent rate here? If you brought money over here, would you be able to reclaim tax, because, if you bring money from another country, you are given a tax credit if that country has an agreement? Does the Minister agree that this matter is not only quite complicated, but is time limited for people who are super-rich, because of the “deemed” provisions?

Lord Davies of Oldham: Well, my Lords, I am not setting myself up as the noble Baroness’s tax adviser at this point. The House will derive some encouragement if I emphasise the fact that, as the noble Baroness accurately described, the domicile rules are circumscribed in such a way that, after a period, individuals are liable to full UK taxation.

Lord Dykes: My Lords, has the well known member of this House returned from Monaco yet?

Lord Davies of Oldham: My Lords, I was not briefed on that point.



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Lord Brooke of Sutton Mandeville: My Lords, if the Minister is minded to follow up the second question of the noble Lord, Lord Mitchell, on examining the opportunity cost to the Exchequer, would he at the same time produce a balancing calculation of the extent of the economic contribution made by such individuals to this country’s economy and, indeed, the tax that has arisen from that?

Lord Davies of Oldham: My Lords, that is why the concession is there in the first place. The noble Lord identified that we want business taxation to be fair, of course, but we also want to encourage the development of the British economy. We have adopted that position with considerable success in recent years. The noble Lord is right. If it is identified that a small group may be taking advantage of the rules as they stand and there is great concern in the country about fairness, it is right that the Treasury should look at that while bearing in mind the point made by the noble Lord.

Business of the House: Debates Today

11.35 am

The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker): My Lords, I beg to move the Motion standing on the Order Paper in the name of my noble friend Lady Amos.

Moved, That the debate on the Motion in the name of Lord Howell of Guildford set down for today shall be limited to three and a half hours and that in the name of Lord Lucas to two hours.—(Lord Rooker.)

On Question, Motion agreed to.

Working Time (Amendment) Regulations 2007

Companies (Political Expenditure Exemption) Order 2007

Regulatory Reform (Game) Order 2007

Regulatory Reform (Financial Services and Markets Act 2000) Order 2007

Official Secrets Act 1989 (Prescription) (Amendment) Order 2007

National Assembly for Wales (Legislative Competence) (Amendment of Schedule 7 to the Government of Wales Act 2006) Order 2007

The Minister of State, Department for Environment, Food and Rural Affairs (Lord Rooker): My Lords, I beg to move the Motions standing on the Order Paper in the name of my noble friend Lady Amos.

Moved, That the regulations and orders be referred to a Grand Committee.—(Lord Rooker.)

On Question, Motion agreed to.



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Offender Management Bill

The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, I beg to move the Motion standing in my name on the Order Paper.

Moved, That the amendments for the Report stage be marshalled and considered in the following order:

Clauses 1 to 5,Schedule 1,Clauses 6 to 10,Schedule 2,Clauses 11 to 38,Schedules 3 to 5,Clauses 39 to 41.—(Baroness Scotland of Asthal.)

On Question, Motion agreed to.

Foreign Policy

11.36 am

Lord Howell of Guildford rose to call attention to the results of the foreign policy pursued by the Government since May 1997 and to the current international standing of the United Kingdom; and to move for Papers.

The noble Lord said: My Lords, it is an odd fact that, while pollsters and opinion experts keep telling us that voters are not much interested in foreign affairs and that all politics are local, nevertheless it is foreign policy issues which more often than not turn out to be the force that tumbles kings, presidents and prime ministers and unseats Governments. I think most of your Lordships will agree that it is certainly foreign policy that will mark the so-called “Blair legacy” most prominently. While there have been undoubted successes, to which I shall refer, I believe that they are far exceeded by the failures and that, when the record is weighed in the balances of history, it will be found severely wanting.

I begin with the doctrine of liberal intervention, which was recently reaffirmed by the Prime Minister on his farewell tour of Africa. This is a sort of cousin of the original doctrine of ethical foreign policy, as proposed by the late and eloquent Robin Cook, which rapidly and not surprisingly came apart under the pressure of events. I think that it was Thucydides who first warned about the problems of ethical foreign policy well over 2,000 years ago, so perhaps a little more reading of history would have helped to avoid some of the pitfalls in the first place.

Today, we have seen the dispatch of armed forces here, there and everywhere. While there has been plenty of intervention, the liberal or moral bit, which is bringing peace and democracy to the countries invaded, has not been as successful. In fact, if we are frank, it has been a truly catastrophic failure in places. The armies that we have sent out have not returned, and the peaceful liberal democracy has not emerged, while of course enormous strains are being imposed on our military resources and financial means and on our world reputation as well.

The Ministry of Defence will tell you that that is no surprise as none of it was planned. Your

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Lordships will remember that, when the Cold War ended and the wall fell and people talked about the peace dividend, it was carefully decided that the United Kingdom would plan and budget its military resources for the long term to fight one major war operation and one minor subsidiary operation. That was the strategic plan. Of course, today we are fighting two major wars and engaging in a whole string of lesser operations. Indeed, we are warned this morning by an authoritative ambassador that one of these wars could last for another 30 years, so no wonder the word is “overstretch” and that we are finding it hard to stay the course.

All this is part of a much larger picture of setbacks and failed strategies. At the outset of 1997, the grand vision we were offered was of Britain as a bridge between the USA and Europe. We were going to be with the Americans “to the end”, and yet we were also going to be wholehearted partners in Europe. That bridge, as we all know, was a fantasy; or if there was one, what there was of it lies crumbled on the river-bed. In the real world, Labour foreign policy has had five major pillars: the European policy, the links with Washington, the Middle East strategy, Africa and the poorer world, and the links with the fast-rising Asian powers—and with prickly Russia, which really falls into neither category. In all these areas there have been major setbacks, damage to the UK and severe loss of leverage. I shall comment on all of them briefly in the time available, although I know that we have already debated European Union questions ad nauseam in your Lordships’ House. I am afraid that there will be a lot more to come on that subject in the coming days.

All I would add at this stage on the European front is that, in all the debates about an amending treaty, could we please be spared this constant bureaucratic demand, this itch for “more efficiency” in the central EU machine so that the sausage process can turn out more and more regulations? We are told that this is why we must transfer more power to the centre, why we need a Foreign Minister to speak for us at the UN—although that is in question—and why we must have a two-and-a-half-year president who will of course be a five-year president and a sort of celebrity Mr Europe. We are told that all this is necessary in the name of efficiency. It is democracy, not efficiency that we should be putting first in establishing our European policy.

Generally, we have let our European policy—and we have always been very good Europeans, whatever else is said—be dictated by someone else. As I said in the debate last week in this House, it is the total loss of initiative by our own policy-makers which one finds so humiliating. Instead of pushing with creative vigour for a modern, decentralised and flexible Union, we have let others promote their, to my mind, outdated concepts and let the grass grow under our feet, with the result that we are at this moment being trapped into a camouflaged constitution which nobody here, quite rightly, wants and from which no amount of red-line drawing will protect us.

I turn to transatlantic relations. As everyone knows, these have been marked most clearly by a

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limited ability—some would say total inability—to influence President Bush and his friends, despite enormous commitments of resources, loyalty, good will and obedience. Looking back, it strikes me that the model that the Prime Minister, Mr Blair, should have followed was really set by the wily Harold Wilson, who I admit was not a much loved figure on our side of the House but was an extremely skilled operator in relations with America. He knew exactly how to stay friendly with the United States while avoiding like the plague entanglement in the disastrous Vietnam imbroglio. The outgoing Prime Minister should have learnt from that model, and I hope that the incoming one will do so.

In the Middle East the list of disasters hardly needs repeating. Iraq remains a confused muddle. We are, I believe, thinking about but cannot yet work out ways of disengaging our troops from Basra and Iraq. Iran proceeds on its own not very sweet way despite threats, resolutions and visits. On Palestine and Israel, the Prime Minister long ago said that he was committed to striving for,

We have neither, nor any prospect of either at present. On the Israelis in Lebanon the Prime Minister backed completely the wrong policy horse, as growing numbers of wiser Israelis and others outside now realise.

In the end it is the rising Asian powers and Russia that stand the best chance of ordering the Middle East. Asia is, after all, where most of the Middle East’s oil actually goes nowadays. The solution is no longer in the West’s hands. I would certainly counsel Mr Blair against accepting, in a new job, any new poison chalice from Washington based on this flawed thinking. Meanwhile our Gulf state friends wait in deep apprehension of an American bombing trip against Iran which would turn regional disaster into global catastrophe.

On Africa, the Prime Minister has unquestionably raised the profile of debate—I am absolutely ready to concede that—and if words could cure all, then all of Africa would now be prospering. But unfortunately the reality and the promises are somewhat removed. Chinese influence is growing in the African continent. The Darfur horror, which is partly linked with Chinese oil ambitions in Sudan, continues almost unabated. Zimbabwe remains a deepening stain on the African story. And the trumpeted aid commitments at Gleneagles and elsewhere have been watered down and become what the somewhat na├»ve but well-meaning Bob Geldof has called “a total farce”, while other crusaders who also believed all the targets, declarations and so on speak rather more bitterly of “a betrayal”.

On Russia, our relations have grown worse and worse. The Russians are undoubtedly very difficult to handle and are in an aggressive mood fuelled by their enormous oil and gas revenues, which have enriched them. All I would suggest is that those who go round demanding a common EU energy policy in face of Russian actions and Gazprom’s activities should think more carefully about continental Europe’s large and growing dependence on Russian gas—it is going to get much bigger, not smaller—and whether this

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country really wants to be entangled in it. Given our growing reliance on gas imports—40 per cent of our electricity is now sourced from gas—my view is that we would do far better to rely on our trusted friend Norway and on frozen gas imports than to become involved in the continental Russian gas system.

Somewhere in this list of setbacks we have to fit the view of the present Foreign and Commonwealth Secretary, Mrs Beckett, who thinks that the number one foreign policy issue is climate security. That aspiration is certainly an awesome one and it may be right—although the power to change the elements used to be accorded only to God and not to man—but, right or wrong, I question whether proclaiming targets and goals for controlling the weather 40 years hence is actually going to achieve much. It would, I think, be much wiser to concentrate on more immediate energy security and efficiency needs and on urgent, immediate environmental issues where we can do something practical rather than just sign aspirations for decades ahead. If we get the short term wrong, we can forget all about a low-carbon longer-term future.

Our real interests now lie increasingly in Asia. It is with the cutting-edge nations such as India, Malaysia, Australia and Japan, and obviously China, that we need to build, or rebuild, far stronger links. They will determine our fate on global warming and everything else. The tragedy is that the one potential network that would truly help us in this task has been ignored and neglected under current foreign policy. I refer of course to the Commonwealth, the forgotten C in the name of our FCO. In a world where the information revolution has replaced blocs and superpowers, here really is the network for the future for us in Britain —a gigantic, trans-continental, multi-faith series of linkages with common values, a common language and common aims of peace and development, friendly to America but not prepared to be Washington’s poodle or lapdog. The incoming Prime Minister, Gordon Brown, said the other day in India that our foreign policy should be based on Europe, our partnership with America and the Commonwealth. I hope he means it, because if anyone tried to sit on that three-legged stool at the moment, it would tip over. It is ridiculous that every British citizen pays £50 a year towards the European Union but only 20p a year—less than the price of a second-class stamp—for the Commonwealth. There is an imbalance and it has to be corrected.

All these setbacks are not the Government’s fault—that is absurd—but a sailor is expected to trim his sails skilfully to the wind. Surely it might have been better to follow the Harold Wilson example on the American decision to invade Iraq before plunging in quite so easily and, as it turned out, on false information. It might have been better to think twice about the fundamental error in the Washington doctrine that democracy could be packaged and exported by overwhelming force. It might have been better to seize the initiative on EU reform with our growing band of like-thinking allies rather than drift along behind Paris and Berlin. It might have been better not to raise so many hopes about African development which could not be fulfilled. It might have been better to explain openly that we live in an

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international relations network, not a regional bloc, and that while our role is in Europe, our destiny lies in wider fields. Above all, it might have been better to have been humble rather than humiliated, although I do realise that humility is not an easy ingredient to put in a PR package and to spin effectively.


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