The Tories said a Labour pledge to abolish controversial “non dom” tax status was “unravelling” after it emerged Ed Balls recently indicated that such a move could cost the country money.
Labour leader Ed Miliband used a speech to declare that the 200-year-old rule, which applies to around 116,000 people, makes Britain an “offshore tax haven for a few” and can “no longer be justified”.
The move against wealthy tycoons who use the rule to avoid paying UK tax on overseas earnings and capital gain is another striking salvo in Labour’s campaign to paint Conservatives as the friends of the rich.
But Chancellor George Osborne dismissed the announcement as a “complete shambles”.
In a January interview shadow chancellor Mr Balls said: “I think if you abolished the whole status then probably it ends up costing Britain money because there will be some people who will then leave the country.”
Asked by BBC Radio Leeds at the time if he would scrap the status, he said he was looking at tightening the system to “make sure the non-dom rules work in a fair way”.
“We have Ed Balls himself saying it would cost the country money,” Mr Osborne said on a campaign visit to a bank in Kingston, south London.
“It is a classic example of the economic chaos and confusion you get with Ed Miliband.
“It’s why they have no economic credibility.”
He said the Government’s policy of increasing the fees charged to non-doms, which he raised as recently as December, had brought in more than £1 billion.
“Either they are going to abolish non-dom status altogether which would cost our country hundreds of millions of pounds in lost tax revenues and lost investment – the reason they did nothing on this during 13 years in office,” Mr Osborne said.
“Or they are just tinkering around the edges and making small adjustments to the rules on how long people can be non-dom,” he said.
Mr Balls earlier told BBC Radio 4’s Today that tighter rules had not led to any exodus.
“People were saying in the middle of the last decade this will lead to people leaving the country. It’s not actually turned out to be the case,” he said.
“The abuse is bigger than we thought. These rules are ridiculous, they are unfair, they are being abused, and I think it’s time to act.”
Political opponents also accused Labour of hypocrisy for having presided over a huge expansion of the number of non-doms while last in government – when Mr Miliband and Mr Balls were senior Treasury figures.
He said an exemption for those genuinely in the UK temporarily would extend only to “two to three years.”
Mr Osborne said “the right approach” was to hit “non-doms” with higher annual charges for exploiting the system – effectively making it only worthwhile for the very wealthiest.
The Liberal Democrats said they planned to take an additional £130 million from non-doms by reforming eligibility rules and “significantly increasing the charges”.