Minister: Tax on non-doms risks the City's future

Trade minister Digby Jones has broken ranks to warn the tax crackdown on overseas businessmen threatened London's status as the world's leading financial centre.

Lord Jones said the Chancellor's plans to levy a £30,000 tax on foreigners living in the UK - non-domiciles or " nondoms" - was making it harder for him to sell Britain as a place for investment.

The former CBI director general was made trade and investment minister by Gordon Brown as part of his attempt to build a government of all the talents.

In an interview with the Financial Times, Lord Jones made clear he was unhappy with the plans and revealed he had not been consulted on them.

"I can give you five reasons as to why you should invest in Britain before you go and invest anywhere else in Europe. But maybe there were seven and now there are five," he said.

Lord Jones said that as well as causing unease in the Square Mile, it had raised fears among potential overseas investors about Britain's attractivenessas destination for skilled people. "It has caused people to say 'Does this mean you don't want us?'" he said.

There was a danger the UK would lose its "badge as the place to come and bring your skill and work hard in the developed world," he added.

"I don't want to be in the position where people are saying 'The product isn't as good as it was'," he said.

The Treasury is consulting on charging non-doms who have lived in the UK for more than seven years an annual £30,000 fee to keep their foreign income out of the UK tax net.

Alistair Darling could raise an extra £650 million a year from the tax. But Lord Jones said nom-doms were worried there could be greater intrusion into their affairs.

"It's also a 'How much do you want to know about me?' bit," he said.

Lord Jones is the latest "Goat" - outsiders to sit in the Government Of All the Talents - to have drifted from the party line. Last November security minister Lord West got in a muddle over the time terror suspects should be detained without charge, while Lord Malloch-Brown criticised the closeness of the Blair-Bush relationship.

Richard Dunbar said the Government's crackdown came too late and was born out of a desire to tackle private equity executives. But Mr Dunbar said 2007 had been the peak of the private equity cycle. "The policy that has been outlined is one that solved yesterday's problems and may have the unexpected consequences that Digby Jones outlines," he told the BBC.

Lord Jones's comments came as London's leading galleries warned the loss of non-doms would deprive them of donations. The Victoria & Albert Museum and the Courtauld Institute and the Tate fear non-doms may not lend works or sponsor exhibitions if the crackdown goes ahead.