Labour urged to revisit non-dom regime to revive London economy
Business leaders have urged Labour to overturn its abolition of the “non-dom” tax regime to stem an “exodus” of high-net worth figures leaving the capital.
Lobby group BusinessLDN has called on the government to create an “Office for Tax Competitiveness” to identify where the UK loses out on attracting investment and growth due to stricter tax rules than its peers.
The organisation has launched its “growth commission” report, commissioned after the November Budget produced downgraded growth, which urges the government to reconfirm London as a global economic leader.
One of the report’s flagship policies is for the government to consider overturning tax changes which make London less attractive to big investment, including the scrapping of the non-dom regime.
Previously, the non-dom tax status allowed UK residents whose primary home was outside of the country to only pay tax on money made within the UK.
But, at the 2024 Budget, Chancellor Rachel Reeves replaced this regime for a residence-based system which taxes all long-term residents on their worldwide income, and introduced a four-year “grace period” for the changes.
Some economists have warned that the Treasury is failing to realise the impact of these changes on the UK’s economy, with one report suggesting nearly 2,000 wealthy non-doms fled the country last year.
The value of London’s most sought-after properties has taken a tumble in recent years, with average house prices in Kensington – where wealthy individuals often live – down by around 10 per cent since 2024.
BusinessLDN’s report said:”This change has been damaging to multiple sectors, from loss of talent in the professional and financial services sectors, to the creative industries, where the reforms have resulted in the loss of high-net-worth donors.”
Ministers are reportedly locked in talks with City leaders on proposals to extend the grace period and introduce a “pay-to-play” visa for the ultrarich.
Other tax policies that the report says should be revisited by the “Office for Tax Competitiveness” include the scrapping of VAT-free shopping, the bank levy and stamp duty.
This department would “identify where the UK is hurting itself by being out of kilter with – or falling behind – other international jurisdictions, publish research and analysis, and put forward recommendations to the Chancellor to inform fiscal decisions”.
London housebuilding at ‘standstill’
The lobby group is also calling on Labour to accelerate housebuilding by delaying a new safety levy and streamlining regulatory red tape.
The government has pledged to build 1.5m new homes by the next general elections, but housebuilders and manufacturers have warned the tax and cost pressures they are facing make this infeasible.
The Treasury watchdog has warned only 220,000 new homes will be built in the next financial year, saying Labour’s planning reforms are yet to “meaningfully” affect housing supply.
Progress on housebuilding targets is particularly slow in the capital, which is expected to contribute 88,000 new homes per year to this target.
But only 4,550 homes are expected to be built in London in each of the years 2027 and 2028, according to consultancy firm Molior.
The growth commission report said housebuilding in the capital is “close to a standstill” and called on the government to introduce a new help-to-buy scheme and improve the efficiency of the building safety regulator to give clarity to developers.
Helen Gordon, chair of the growth commission, said: “Unlocking the full economic potential of London as an economic engine for the UK is essential to deliver the growth needed to make people across the capital and beyond feel better off.
“While the capital has inherent strengths from the rule of law to a highly-skilled workforce, success can’t be taken for granted amid intense global competition.”
John Dickie, BusinessLDN’s chief executive, said the government’s growth initiatives are “starting to bear fruit,” but called on Labour to accelerate efforts to boost business confidence and private sector investment in the capital.