Alistair Darling quietly introduced key ground-breaking concessions to his controversial plans for an annual levy on non-domiciled foreigners.

Leading City figures said the Chancellor had probably just done enough with his non-doms policy changes to prevent a mass exodus of talented entrepreneurs. They also said that Britain’s reputation as an attractive place to conduct business would be maintained, but criticised Mr Darling for introducing the “unclear” proposals that were being hurried through with insufficient consultation.

Richard Lambert, Director-General of the CBI, the lobby group for employers, said: “The Chancellor has made some worthwhile changes to core aspects of the non-doms proposals, notably leaving alone gains and income from assets in trusts kept offshore, and pledging to avoid double taxation issues. All this will soften the impact.

“However, damage has been done to the UK’s reputation for tax stability and as a country which actively wants to attract talent and capital.”

Rose-tinted specs fail to offer hope

The obvious justification for Mr Darling’s relatively upbeat scenario is that the outlook is fraught with uncertainty

Background

• Darling's first Budget: the main points

• The Chancellor's speech in full

• Darlings first Budget: the reaction

• Chancellor hits the home budget as his debts soar

• Need to know: Budget 2008

The Chancellor delivers a modest Budget

As so often is the case, virtue, in terms of improving public finances, is not now, but at least a year away

Multimedia

• Video sketch: Matthew Parris and Ann Treneman

• Eco-worrier: should we be pleased?

• Green Central: round-up of the green Budget measures

Multimedia

• Red Box: a list of Darling's new enemies

• The winners and losers

• Video: the 'fingers crossed' budget

Michael Snyder, policy resources chairman at the City of London Corporation, said: “The devil is still very much in the detail. The Chancellor has clearly listened to the City's overall concerns, but we need to be sure that the detailed rules to implement this do not — even inadvertently — do any further damage. The City now needs to reestablish its long-held reputation around the world as a welcome place for wealth-creators and knowledge workers.”

Alex Henderson, tax partner at PricewaterhouseCoopers, the consultant, said: “I think it’s going to be easier to stay in the UK now. Of course, the measures could have gone further, but he has gone in the right direction.

“This is still being rushed, but you can’t say that Mr Darling has not listened.”

The Chancellor caused unprecedented hostility when he unveiled plans in his Pre-Budget Report last year to introduce a £30,000 annual levy for so-called non-doms present in the country for more than seven years. The Treasury is aiming to raise£700 million in the financial year between 2009 and 2010 from the levy and £500 million the following year.

Businesses argued that the tax plan would prompt businessmen and entrepreneurs to quit Britain in droves and undermine London’s stature as a world-class financial centre with an attractive tax regime. Lobby groups including the CBI called for the measures to be delayed for a year in order for the Treasury to remove some of the unintended consequences.

An analysis of the full text of the Budget shows that investment gains from offshore trusts will be exempt from British tax until they are “remitted” to Britain. The Treasury also put forward plans to enable non-doms to offset their liability against their US tax bill and exempted children and young people under 18 from the charge. A de minimis threshold of a taxable gain of £1,000 has been doubled to £2,000.

Mr Darling also relaxed the so-called 90-day residency rule. Business travellers can use airports and the Eurostar terminus for transfers without having time spent in Britain counted for residency purposes unless they stay overnight or have business meetings. Together, the Treasury’s concessions have reduced the planned tax-take next year by £100 million.

Mr Darling pledged that he would not tinker with the non-dom rules during the life of either this Parliament or the next.

Chris Sanger, head of tax policy at Ernst & Young, said Mr Darling’s non-dom measures were still a cause of uncertainty. “We will be working our way through the 20 pages of Budget notes to see if we can get some clarity,” he said. “If we can’t, then we will be advising our clients on what the best available options are for them.

“What we haven’t seen is a deferral. We are still facing a sudden change. It’s a disappointment that the Chancellor has chosen to carry this through.”

There were still voices arguing that the Chancellor should have gone further. Brendan Barber, General Secretary of the TUC, said: “While the Chancellor has stuck to his non-dom guns, he was wrong to rule out further changes when the threatened talent exodus fails to materialise. The richest non-doms will hardly be troubled by this £30,000 poll tax.”

Stephen Pallister, tax and trust partner at Charles Russell, a London-based private client law firm, described Mr Darling’s concessions on offshore trusts as a massive climbdown.

He said that any non-doms worth £25 million to £30 million would use offshore trusts to structure their financial affairs and would be celebrating a big exemption from capital gains tax. The Treasury also scrapped plans to backdate its non-dom rules and force complete disclosure of basic details of all the offshore trusts they hold. “All the proposed changes have been completely scrapped, in no small part as a result of lobbying,” Mr Pallister said.

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