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date: 3 March 2008

embargo: 00.01hrs Tuesday 4 March 2008

Non-dom loophole is stifling enterprise for UK businesses, says TUC

Businesses owned by non-domiciled residents are exploiting the non-dom tax loophole to gain an unfair advantage over businesses owned by standard UK taxpayers, according to the TUC Budget Submission released today (Tuesday).

The non-domicile rule is stifling genuine business competition by allowing generous tax arrangements for non-dom owned businesses. These businesses can avoid paying tax on export profits by registering their company in an off-shore tax haven. Unlike standard UK taxpayers, non-doms cannot be challenged by the HM Revenue & Customs (HMRC) over such arrangements. This gives non-dom owned businesses a major advantage on cost compared to businesses owned by standard UK taxpayers.

Non-domiciled business owners can also use this loophole to avoid tax on share dividends as well as capital gains tax when selling a business.

The Government's proposed reforms will not address these problems as non-dom business owners will still be able to use this unfair advantage for seven years and then pay £30,000 to continue enjoying the advantage after that. The TUC's Budget Submission calls for the non-dom rule to be scrapped altogether.

TUC General Secretary Brendan Barber said: 'If the UK is to survive in today's ultra-competitive global economy, it needs a tax system that rewards business innovation and productivity not the ability to exploit tax loopholes. The Chancellor should consider this when drawing up his Budget and must ignore the self-interested whining of a small City elite masquerading as the national interest.'

Next week's Budget also gives the Government the opportunity to make a fresh start on public sector pay, says the TUC submission. Last year the Government's insistence that pay awards to public servants such as teachers, health workers and prison officers were kept below two per cent caused widespread resentment and dissatisfaction. Staging of the pay awards for some workers only served to increase tensions and left many public servants even worse off, says the TUC.

The TUC Submission urges Alistair Darling to come clean next week and admit that his desire to limit public sector pay has very little to do with inflation and much more to do with meeting rules on Government borrowing.

After a year of ignoring the findings of the independent pay review bodies covering public sector pay, 2008 has at least begun in a more positive manner, says the TUC, with the Government recently accepting the recommendations of the teachers' pay review body. But the emergence of longer term deals, with pay awards above the consumer price inflation index (CPI) but below the retail price index (RPI) (which includes mortgages, council tax and transport costs) is causing concern at a further cut in public sector pay should inflation rise significantly in future.

The TUC Submission says that unions are not opposed to three year deals in principle but how the deals are greeted depends on the individual terms on offer, how much they protect the living standards of the six million public sector employees in the UK and whether or not an effective trigger mechanism is included that can be activated should inflation soar during the course of the deal.

TUC General Secretary Brendan Barber said: 'The Government's public sector pay policy is causing much pain but very little gain. The Chancellor should use next week's Budget to tell the nation that the Government intends to honour the recommendations due to be announced by the public sector pay bodies over the next few months. Where public servants are not covered by pay bodies, in local government and the civil service for example, employees should at the very least enjoy pay rises no less than RPI.'

Other recommendations included in the 2008 TUC Budget Submission include:

• A halt to the Government's so-called efficiency programme - which has seen thousands of job cuts across Government departments - until the results of its effect on public services have been rigorously and independently assessed.
• The Chancellor should make good the £80 million shortfall in the budget of the Science and Technology Facilities Council. This extra money would remove the threat to some of the UK's most important science centres and send a message about the true value placed on science by ministers.
• An increase in the statutory limit for calculating statutory redundancy pay to £500 per week from next February.
• An extra £4 billion a year for benefits and tax credits for children to help the Government meet its commitment to halve child poverty by 2010.
• Increased funding for the Health and Safety Executive, the HMRC National Minimum Wage Compliance Team, the Employment Agency Standards Inspectorate and the Gangmasters' Licensing Authority to alleviate the recent problems caused by recent budget cuts and improve the enforcement of workers' rights.
• Restoring the pensions link with earnings to ensure that all pensioners share in national prosperity, by 2010 at the latest, and an immediate increase in the basic state pension to £124.05 per week.

NOTES TO EDITORS:

- The 2008 TUC Budget Submission is available at www.tuc.org.uk/extras/budgetsubmission08.pdf

- The TUC response to the Treasury consultation on Residence and Domicile, 'Paying a Fairer Share' is available at www.tuc.org.uk/extras/fairershare.pdf

- All TUC press releases can be found at www.tuc.org.uk

Contacts:

Media enquiries:
Liz Chinchen T: 020 7467 1248 M: 07778 158175 E: media@tuc.org.uk
Rob Holdsworth T: 020 7467 1372 M: 07717 531150 E: rholdsworth@tuc.org.uk
Elly Brenchley T: 020 7467 1337 M: 07900 910624 E: ebrenchley@tuc.org.uk

Press release (1,000 words) issued 4 Mar 2008