Changes to rules on residence and domicile tax, part of the 2008 Finance Bill, may have damaged the UK's international competitiveness, according to the House of Lords Committee on the Finance Bill.
It has called on the Treasury to publish its economic analysis, which makes a more optimistic assessment of UK competitiveness than the private sector.
The Committee says there was inadequate consultation on the impact of changes to residence tax, domicile tax and capital gains tax.
In its report on the Finance Bill, the Committee says: “[We] are particularly concerned by the weight of evidence that the proposals on residence and domicile seem likely to have a negative impact on the UK's competitiveness and think it is vital that all that is possible is done to retrieve the position.
“The Committee calls on the Government to reassure non-domiciled people that the move was not intended to discourage them from coming to the UK and to reassure investors of the advantages of investing in the UK.”
Evidence from private sector witnesses says consultation on the bill had been poorly handled and fell short of the good practice they had seen on other issues. The Committee says there are no reasons why there could not have been earlier, better and more open consultation on the bill.
The Treasury is being asked to review its consultation processes and hold open discussions with interested parties to develop a Code of Practice for tax policy consultations.
Lord Vallance, chairman of the Committee, comments: “We have heard harsh criticism from the private sector of the way in which the residence and domicile initiative was handled.
“It was claimed that the shocks which have been given to the tax system by these changes and those to capital gains tax may undermine the stability of the tax regime and UK competitiveness. Our general impression from the evidence we received was that this year the formulation of tax policy has been marked by uncertainty of direction.”
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