Like a drowning man grasping at straws, the British Conservative Party is desperately seeking ways to avert a third consecutive defeat in parliamentary elections likely to be held in less than nine months.

So there is no surprise that Tory chairman Liam Fox, in a speech in Dubai last month, sounded the alarm in an effort to raise cash by suggesting that British Chancellor Gordon Brown is plotting to tax Britons living abroad.

In this week’s cover story, Andy Critchlow investigates the impact this would have. It could be enormous.

Tory Treasury spokesman Oliver Letwin, in statement to MEED, failed to say whether the Conservatives opposed expatriate taxes or intended to abolish them when in power. But a new issue has been thrown into the political cooking pot. There are, as yet, few certainties.

The star of this tale is Brown, now half-way through his eighth consecutive year in charge of Britain’s economy. He is the longest-serving holder of the post since William Gladstone more than 120 years ago. In his watch, the UK economy for first time in decades has had uninterrupted growth, high employment levels, low inflation and sustainable public finances.

The next 12 months, nevertheless, are likely to be the most fateful in Brown’s career. Should Labour win again, Prime Minister Tony Blair may retire in glory, clearing the way for Brown to fulfill his waking dream and enter 10 Downing Street as the boss.

This is why the speculation prompted by Fox’s remarks, which reflects a live debate in Whitehall and the City of London, is more than an argument about fiscal strategy and the threat to the golden lifestyle of as many as 200,000 Britons living in the GCC. It focuses attention on an issue that could have a long-term impact on British politics and tax policy in the whole EU.

For Brown, the issue is uncomplicated. Each year, tens of thousands of professional middle class Britons are leaving the UK to reside in zero-tax environments like the UAE, steadily eroding a valuable part of his tax base. The Dubai International Finance Centre (DIFC) is the most eye-catching of a series of Gulf developments designed to lure high-earners from the UK and other high-tax environments. For a top finance specialist hoping to earn, in a good year, $500,000, the temptation of living in a properly-regulated but tax-free centre within easy reach of most major markets looks overwhelming. It could mean pocketing an additional $150,000 annually for no extra effort.

These are exactly the kind of people from whom Brown, meanwhile, is attempting to extract the additional cash needed to fill the gap in his budget projections. Taxing wealthy Britons in the Gulf will also do him no harm in the eyes of Labour loyalists.

No finance minister can be indifferent to the loss of high taxpayers. Almost 30 years after US President Carter imposed taxation on the worldwide earnings of American citizens, the time may well have come for the rest of the world to follow suit. Brown, determined and hardworking, may be the man to lead the rest in what would amount to be a revolution in global tax policy.

Taxing the worldwide earnings of British citizens would be one of the biggest changes in fiscal policy since income tax was introduced at the end of the 18th century. It would also, at a stroke, hugely expand the Treasury’s capacity to raise money from the wealthy.

Should Brown pull this off, he will secure a shining place in British economic history.

But there would be a price. Nothing will enrage Britons overseas more than a large and sudden increase in their outgoings. For the first time, millions of UK expatriates will have a compelling incentive to participate in British elections. In 2001, the difference between Conservatives and Labour was 1.3 million votes, less than two-thirds of the number that could be affec