Recent official UK non-dom figures are a reminder that tax incentives, as Ronald Reagan used to point out, are important.

There may have been a “Boris bounce” for the UK’s ruling Conservative Party in opinion polls after the fair-haired politician and jovial newspaper columnist entered 10 Downing Street, but some of the bounce has left the UK economy. And figures suggest that while Brexit – or recent uncertainties around it - is hitting the economy, domestic tax policy of recent years is arguably one of the big villains.

Boris Johnson is possibly, commentators say, a fan of “Reaganomics” – which at its core is the idea that people respond to lower marginal rates of tax by working harder, taking more entrepreneurial risks and investing. While it has its critics, the argument about incentives would appear uncontroversial enough: governments of all political hues use taxes, for example, to deter people (well, that is what they claim) from smoking, or using certain types of product, such as sugar. So if taxes discourage smoking, then they can also sap the work ethic. US economist Arthur Laffer famously stated that the optimum tax rate can be described as being on a curve. The curve is between a rate of zero that generates no revenue and 100 per cent that also collects no money because it crushes economic activity. Some Lafferites suggest that the optimum tax bite is no more than about 35 per cent.

We have had some notion of how higher taxes can paradoxically reduce rather than raise revenues. UK official figures show that the number of resident non-domiciled people in the UK for the 2017-18 financial year had fallen to 78,300 from 90,500 a year earlier. Fewer non-doms means less revenue. Non-dom taxpayers paid £7.539 billion ($9.2 billion) in UK income tax, CGT and National Insurance contributions in 2017-18. This is a fall from the previous year’s estimate of £9.489 billion.

Successive Conservative, coalition and Labour governments have turned the screws on non-doms, perceived as having the unfair ability to shelter worldwide income from tax provided they didn’t bring it into the UK. Fairly or otherwise though, the reduction in the number of non-doms has squeezed revenues. Some policymakers may think they are winning a battle for fairness, but it carries a cost. Tax changes that kicked in from April 2017 mean that non-doms became domiciled for tax purposes, including capital gains and income tax if they had been resident for 15 out of the last 20 years. Before, this rule only applied if they had been resident for 17 out of 20 years and only inheritance tax was involved.

Tax policy on a number of fronts has made the UK a less friendly place for HNW investors than before, a result of the rising anger (possibly justified) about the incentives governments used to grant overseas investors. From 6 April 2019 most disposals of foreign-held UK property were subject to capital gains tax. CGT will also apply to certain disposals of shares in companies that derive 75 per cent or more of their value from UK real estate. If one throws in higher stamp duty taxes on property deals, this all creates headwinds for areas such as property and investment. And let's not forget that four years ago the UK doubled the cost of acquiring a Tier 1 Investor Visa to £2.0 million, one of the world's "golden passport" programmes.

Some of these changes have been brewing for some time, but it may be that the cumulative effect is starting to make itself felt. The data about non-doms came out a day before UK official figures also suggested that Brexit uncertainties are taking their toll (this arguably also applies to countries such as Germany, a point that is often overlooked). On Friday, official data showed that the first estimate of UK gross domestic product showed that it contracted by 0.2 per cent in the second quarter from the previous three months, down from +0.5 per cent in Q1 and missing consensus forecasts that it would be flat. Growth is weakening in a number of countries and US-China trade rows are shaking sentiment. (The US Federal Reserve cut rates 0.25 per cent a few days ago, seen as an “insurance” move.)

Back to tax, there is some likelihood that the new Johnson administration, with unapologetic Thatcherite finance minister Sajid Javid at the Treasury, might look for certain tax cuts to offset the negative impact of recent Brexit uncertainty. With Johnson announcing last week that he wants to lift a cap on visas for scientists working in the UK, the tone of this administration appears more openly pro-growth and free market than the previous Theresa May one. We might expect to see fewer attacks on foreign “fat cat” investors and so forth that have been standard public fare in the past decade.

In fact, as a recent Institute for Fiscal Studies report shows, the “one per cent” pay a disproportionate amount of the total UK tax take. Some of this merely reflects, of course, the rise in wealth inequality that has been a notable feature of life in developed countries in recent decades as the winners of globalisation, aided by central bank cheap money, have made fortunes. It may also suggest, however, that some attacks on HNW individuals’ tax treatment are unfair, and that some of the policy changes have backfired.

If the UK wants to ride out the uncertainties ahead and prosper, genuine wealth creators should not be penalised by tax policies that play more to prejudice than hard statistical evidence. Let’s hope that the new Johnson administration understands.