Mr Darling and the great non-dom fiasco

In the brief days of Mr Brown's "Government of all the talents" (dubbed "Goats" by Whitehall insiders), figures such as Lord Jones were supposed to add wise counsel on difficult issues. Alas, the Goats have become rather turbulent beasts, not easily tethered and with an unpredictable bite.

At the sharp end of all this is Alistair Darling, who has just endured several delegations, all complaining about the impact of his plans. Goldman Sachs - which has enjoyed a comfortable relationship with New Labour - complained about the impact of the proposed non-dom changes on its international employment record, while a leading Treasury adviser, Bob Wigley of Merrill Lynch, claimed that the economic case for taxing non-doms at all is false - to say nothing of American pressure to ensure that the tax does not end up with US citizens being unable to claim relief against it in the US.

We should remind ourselves that a month before the Budget is the time of maximum impact for any group which wants a last-minute concession. I particularly enjoyed the description by an Ernst and Young tax partner of the proposed taxation as "vicious". Personally, I find the Inland Revenue vicious around the end of the tax year, too, but we do learn to live with it.

Questions of taxation demand a balance between fairness and practicality. In a perfectly equitable world, governments could tax non-doms without due regard for the consequences. Few of us expect that to happen.

Yet neither is it obvious that, regardless of what they contribute to the UK in terms of employment or donations, all non-doms should be let out of the tax system - especially as their numbers have risen exponentially in the past decade.

The Government's best defence was thus to ensure that its provisions for taxing the non-doms were as precise, water-tight and careful as possible - and then sit out the storm.

Either that or not touch it in the first place. One of the reasons that it looks so vacillating now is that there never was great conviction around Mr Brown about going after non-doms at all - which is why he did not do so in all those years as Chancellor.

Last year I interviewed Geoffrey Robinson, the PM's close friend, former Paymaster General and (this is not an irrelevant point in this debate), a wealthy man who knows how other wealthy people think.

Mr Robinson could not have been clearer that he wanted nothing to do with a fiscal clampdown on foreign residents and was explicit that the taxhaven status of the UK had "played a positive role in the way London is perceivedin the world", adding: "I wouldn't want to jeopardise that."

Indeed, the signal from Camp Brown was that nothing or very little would be done that might frighten off wealthy foreigners - until the Conservatives launched their own surprise raid and opened up the field of play.

As embarrassing as the rows about non-doms are for Mr Darling, there are repercussions for the Opposition, too. George Osborne has been earnestly imploring the Chancellor to " abandon your ill-thought-out and badly conceived plans" - while urging the Government to adopt his ruse of raising £25,000 from an annual levy on non-doms.

This is not just tail-tweaking. It is very important for the Conservatives to have government cover, since they are committed to funding a very expensive inheritance-tax cut from their proposed "fee" payable by non-doms. The maths here is a stretch, to say nothing of the questionable legal status of a non-tax levy.

Some non-aligned Treasury critics doubt Mr Osborne would really raise the funds he needs to meet his calculation. As we have just seen, we are not dealing with a constituency inclined to pay up without a fight, or without its little ways of minimising its losses.

Also, if Mr Wigley is correct, and the "economic case is flawed from the start", then that must apply to the Tories on a £25,000 yearly levy nearly as much as to Labour on a £30,000 one; so the question of how serious the threatened exodus is begins to impact on their credibility, too, when they need to prove they are a reliable bunch with figures.

But Mr Darling is currently Chancellor-He chose to follow the Conservative-lead and Labour has had ample time to finesse its offer. The Treasury has now relented on a key point: it will assure non-doms that it will not pry into their tax affairs in other countries, nor demand knowledge of their earnings worldwide.

The only mystery is why, having worked on this since 2002, it had not previously sorted this out. Whoever had the idea of bolting on one of those oft-threatened, never delivered raids on tax havens made a serious error of judgment.

Having arrived with the fate-tempting reputation of a steady pair of hands, Mr Darling has found himself on the wrong end of just about every major development since taking office. From Northern Rock to Capital Gains Tax (a home-made mess) to the decision to rush into a near-matching bid with the Conservatives on inheritance tax and now the latest volte-face, he looks buffeted and unanchored.

He is right to reconsider aspects of his intentions towards the non-doms this week: some U-turns are a better option than marching towards the cliff edge. But to have misjudged the technical detail of such a high-profile policy is not confidence-inspiring when what the Government most needs to regain is a sense of purpose about its mission.

Mr Brown has made clear that he intends to run against the Cameron challenge on experience and economic savoir-faire. It is harder to make that seem convincing when so many Treasury initiatives are ending up in corrections, clarifications and sudden reversals. Mr Darling's Budget day is beginning to look like a daunting date with destiny.