A LEADING adviser to the Treasury this weekend lambasted plans for a tax crackdown on nondomiciled UK residents, heaping further embarrassment on chancellor Alistair Darling.

Bob Wigley, the chairman of Merrill Lynch Europe, Middle East and Africa and a member of the chancellor’s “wise men” group who advise the Treasury on how to keep London competitive, told The Sunday Times: “This proposal was ill-conceived from the start. While it clearly has some political attraction, the economic case is flawed.”

Other investment banks are known to have lobbied the Treasury, arguing that the new rules could damage London’s position as a financial centre. Darling has faced an avalanche of protests about the tax measures since details were unveiled last month.

Nondoms are people whose family roots are outside the UK but who work here. The proposed changes would levy an annual £30,000 on them if they want to avoid UK tax on foreign income they keep outside Britain. More significantly, Darling also wants to clamp down on nondoms’ use of offshore vehicles for tax avoidance.

A senior figure from Goldman Sachs – where as many as 40% of employees are thought to be nondoms – has already been to the Treasury to argue against the changes. A group of banks has arranged to see the Treasury next week. And the London Investment Banking Association has complained to the chancellor.

But Wigley’s intervention is particularly embarrassing for the chancellor because of his position as an adviser to the Treasury.

Wigley is UK-domiciled and is a member of the court of the Bank of England. He said: “These measures were partly aimed at the nondomiciled billionaires. They could, if not withdrawn or substantially amended, drive offshore young upcoming talent that currently chooses to live in London, so making London the leading global financial centre.”

He added: “When you consider that most of those who could be driven away probably don’t use the state education or health systems but spend a lot of their above-average incomes here, so contributing disproportionately to Vat receipts, these are exactly the good-value taxpayers London should want to retain.”

Wigley has made direct representations to the chancellor in the past few weeks. He also wrote to Kitty Ussher, the City minister, expressing his concerns before Christmas.

It is believed that as many as 600 out of 6,000 Merrill Lynch employees in Europe could be affected by the tax changes. Other big investment banks are believed to have similar numbers of nondoms.

Wigley said: “By introducing change, the government has introduced uncertainty into what has for a long time appeared assured. It may be too late to put that genie back in the bottle, but real political will to safeguard London’s future as a leading global financial centre is required.”

Lord (Digby) Jones, trade and investment minister, has voiced concerns, as has Paul Myners, chairman of Land Securities and an ally of Gor-don Brown. CBI deputy director-gen-eral John Cridland said this weekend that Darling had underestimated the damage the tax change would do. “It is more and more clear that the ramifications of this go much deeper than the chancellor realised,” he said.

“This has significant implications both for the City of London and the wider economy. We need to remember how mobile a lot of these guys are. They can up sticks and work at a desk in Dubai or Basle at a week’s notice.”

Until now, the suggested £30,000 annual levy on people wanting nondom status has been the focus of the debate over the measures.

But since detailed proposals were published by the Treasury last month, it has become apparent that measures to clamp down on the use of offshore trusts could be far more significant for large numbers of nondoms. If enacted, the new rules would mean that nondoms would have to pay capital-gains tax on profits they make on houses owned through offshore vehicles. And the Treasury is proposing rules that tax might be payable when nondoms bring capital into Britain.

Concerns have been voiced about the potential impact on charities and the arts. Bringing a work of art into Britain after April could be construed as importing capital.

Lord Rothschild said this weekend: “I know one family that has donated over £50m to good causes in the UK over the years. I’m sceptical that this will go on in the new environment.”

The CBI estimates nondoms account for £16 billion of spending and £7 billion of tax revenues annually.

The planned tax will raise £800m in 2009-10 and £500m in 2010-11, according to Treasury calculations.

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