ONLY A FEW weeks ago Rishi Sunak, Britain's chancellor, was seen as the most likely successor to Boris Johnson. Dapper where the prime minister is dishevelled, Mr Sunak was popular for his handling of the pandemic; his personal wealth was seen as a story of can-do competence. His star is now fading fast. A cost-of-living crisis is battering both household finances and his approval ratings: they have plummeted from a peak of +49 during the pandemic to -29 now. And his affluence has abruptly become a source of weakness.
On April 6th, the very same day that the Treasury increased payroll taxes, it emerged that his wife, Akshata Murty, has non-domiciled ("non-dom") tax status. As a non-dom, and in exchange for an annual fee of £30,000 ($39,100), she does not have to pay tax in Britain on income generated abroad. That matters because her foreign assets include a stake in Infosys, a giant Indian IT-services company founded by her father, which generated dividends worth a reported £11.6m for her last year. If Ms Murty had been registered as a UK resident, 38.1% of those earnings would have been due to the government department her husband runs. As it is, zilch.
Mr Sunak is aggrieved by the focus on Ms Murty's finances. Wrongly so. He alleges a smear campaign, but it is an odd sort of smear when the principal facts are not in dispute. Mr Sunak's argument that his wife's income is her business would make more sense if the government did not treat marriage as a financial merger, in which assets can be transferred between spouses tax-free. To imply that it is sexist to think differently would hold up better if non-dom status were not so archaic: the exemption itself is a legacy of empire and even now a person's "domicile of origin" is still largely determined by paternal lineage. To say that Ms Murty has done all that Britain asks of her in terms of her tax affairs is both true and deeply disingenuous, when he is the person in charge of what is being asked.
The right thing for the chancellor to do is to scrap non-dom status altogether. There is no natural law of taxation which requires it. The non-dom category layers further complexity onto an already-intricate system. The government's guidance note on how to determine where someone is domiciled features four baffling flow charts and lots of advice to get advice.
The fear that getting rid of non-dom status would discourage talented foreigners from coming to or staying in Britain is not to be dismissed: at the margins, it will deter some people. But the country's attractions (or more specifically the south-east's, where the country's 76,000 non-doms tend to cluster) are not restricted to tax breaks: schools, culture and property rights are all in the mix. And once put down, roots persist. New analysis by academics at the University of Warwick and the London School of Economics suggests that people who have ceased to claim non-dom status do not scarper afterwards.
Above all—and especially at a time when living standards in Britain are about to record their steepest drop since records began in the 1950s—it is essential that taxpayers regard taxes as fair. In truth, the tax system is progressive: average tax rates rise with income. But non-dom status is an anomaly; it is overwhelmingly used by the mobile rich. In 2018, 0.3% of those earning less than £100,000 had claimed the exemption; that figure jumps to 41% for those earning £5m and above (among migrants, it zooms to 84%). And since non-doms do not have to tell British authorities where they pay tax on their foreign assets, overseas income can be channelled to tax havens instead. There is no suggestion or evidence that Ms Murty has done anything illegal. But her husband should stop complaining and get rid of the exemption.