It was much easier for George Osborne to announce a tax break yesterday than a tax increase. No one doubts that inheritance tax could be slashed and stamp duty shrunk, if money could be found elsewhere. But Labour claims that his proposals to tax non-domiciles would fail to raise the cash needed.

That is a bit rich, given that for years the Government has constantly fallen short of raising the tax revenues it sets out in its Budget forecasts. Taxes never really bring in as much as chancellors hope. But with the threat of an early election, the Conservatives can’t afford to be too cautious in their projections.

Non-domiciled taxpayers

“Tax the rich!” is an unlikely slogan for the Tories. Even more bizarre would be a Tory Shadow Chancellor brave enough to shout: “Bring back the poll tax!” Yet combine those two policies and that is exactly what Mr Osborne has done.

The Conservatives’ plan for taxing UK residents who are non-domiciled for tax amounts is an odd straitjacket. On the one hand, those “non-doms” who are not especially rich can opt into the British tax system and avoid the levy entirely. At the other end of the scale, the Roman Abramoviches and Lakshmi Mittals will barely notice a £25,000 charge. But in the middle are a range of foreign workers who will pay a flat charge — a poll tax in all but name. As they get richer they will surrender a smaller share of income in tax. In other words, this is a regressive squeeze on the fairly wealthy.

There is no doubt that the non-dom regime is ripe for overhaul, and this proposed levy will have the advantage of being easy to collect. But despite the detailed costings from the Tories, it is hard to feel confident that it would bring in the hefty sum of £3.5 billion.

No one knows how many non-doms there are in Britain — estimates range from 112,000 (the official figure two years ago) to somewhere above 200,000. The Conservatives have used a cautious figure of 150,000, which seems fair. But some may leave as quickly as they have arrived, particularly if the London finance boom unwinds.

Others with low levels of overseas earnings — £62,500 or less, to be precise — would be better off opting out of the non-dom system altogether under the plans. Here, the Tories argue that “the vast majority will pay the levy” because they all earn so much. Non-doms’ average UK income is £100,000, they say.

But, to get technical, the average paints a misleading picture if the distribution is skewed. In layman’s terms, there are a lot more of the fairly rich — that is, the ones who might choose to opt out — than the mega-rich.

Last night the Treasury released figures — previously considered top secret, but they seem to have made an exception for the Labour Party — to suggest that only 15,000 non-doms would be rich enough to choose to pay the levy rather than opt out. It’s anyone’s guess how many people will really end up paying.

Inhertiance tax

The Conservatives published two maps yesterday. In the first, most of England, southeast Wales and Edinburgh were coloured in, meaning that the average homeowner there is liable for inheritance tax. The second shows the result of the Tories’ plans. Only one area remains coloured in: Kensington & Chelsea. Once David Cameron and Mr Osborne are in power, it seems, the only people still paying inheritance tax will be in Notting Hill!

It makes sense to raise the threshold in response to decades of rising house-price inflation. But what if house prices fall? Should the number of £1 million-plus houses start to drop, the remaining tax take will crumble. Still, this is a problem that both parties face.

First-time buyers

The plans for first-time buyers sound good, but there are serious questions. Will it really improve affordability? Only for some. Overall, though, any subsidy to house purchase — which this is — will stoke demand for properties even higher. What would really help would be a loosening of the constraints on the supply of new homes. But that is a much more painful pledge for politicians to make at election time.

Besides, who exactly is a first-time buyer? There is no legal definition. How will people prove that they have never purchased a home? What happens when a couple buys a house when one of them has previously owned and the other has not? Strange behaviour could emerge in response to this law. Will the middle-aged buy second homes in their grown-up children’s names, to save thousands of pounds in tax?

In fairness the Tories’ plans do allow for a 33 per cent rise in the number of first-time buyers as a result of the policy. But chances for playing the system could well increase.

Politicians should remember the only iron law of politics: that of unintended consequences. If you set out to tax foreign residents to pay for first-time buyers, you are likely to end up with fewer foreign residents and a lot more first-time buyers.

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