Tories under fire in the Guardian today for their non-dom tax plans, as it seems there may not actually be that many people to pay the non-dom charge. What surprised me most though was the tiny level of the charge - a fraction of what these people owe. Surely better to get as many as possible to pay a realistic tax rate (even if you want to be generous and give them some measure of a proportional discount for staying away) than to get lots of them coughing up peanuts?

Steven Levitt, in his popular economics book Freakonomics, talks about something similar to this. A nursery was having problems with parents turning up late to pick up their kids. Feeling that the opprobrium of staff and distress of their kids was not having sufficient grip on these tardy parents, the nursery opted for introducing a late fee. Turn up too late and you pay a few bucks to release your kid from the pound. Surprisingly though this didn’t have the desired effect. The number of late parents shot up, and people started to routinely turn up later and later. The fine had cancelled the social stigma associated with leaving the child late, and replaced it with a transaction that, for fairly wealthy parents, seemed actually pretty good value.

Might something similar happen here? No, I don’t mean the non-doms will leave their kids here whilst they jet off to Monaco, but that by absolving the tax consciences of anyone who goes non-dom for a quick and painless £25k, will not many more of the UK’s international super-rich who do currently cough dutifully up consider themselves entirely justified in paying the fee to avoid a tax bill many times that amount? If it did, the Tories’ scheme could end up costing the Exchequer itself, let alone paying for any tax cuts for the estates of the front bench’s mates.

This entry was posted on Tuesday, October 2nd, 2007 at 1:59 pm and is filed under Tories. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.