“Everyone with an ISA is involved in tax avoidance.” So said Lord Sassoon, former Treasury minister and beneficiary of a trust fund based in the Bahamas, amidst the furore that broke a week ago.
The very rich can be very obtuse. Equating a saver who has a few hundred pounds in an ISA and is earning 0.25% interest on it with, for instance, a sports celebrity who has just-about-legally avoided paying £220 million in VAT on a private jet by registering it in the Isle of Man is not just ridiculous, it’s an insult. Lord Sassoon should apologise to ISA holders. He won’t, of course.
The so-called Paradise Papers, 3.4 million confidential documents leaked by the offshore tax firm Appleby, lift a curtain on the world of what are repulsively known as “high net worth individuals.” They offer a baffling insight into the web of practices used by such people to hide their wealth in places where it can’t be taxed. The practices are convoluted, opaque, bizarre, but all basically dedicated to concealing who owns what. Sometimes even the accountants don’t know what’s going on.
As Molly Scott Cato, MEP, said in relation to the Panama Papers last year, Britain is right at the heart of this web. “More than half the companies listed were registered in the British Virgin Islands, and the data showed that other overseas territories and countries with a rather murky relationship with the City of London dominate that data.”
The Tories are on the wrong side of this, in the nature of things. They are traditionally the party of the privileged and propertied. New Labour may have been “relaxed” about extreme wealth, but it was Margaret Thatcher who made the ambition to be filthy rich respectable, and it was the Conservatives who recently cut the 50% tax rate and lowered corporation tax.
True to form, the Government last month voted down Labour amendments to the finance bill which would have forced UK beneficiaries of overseas trusts to declare their sources of property and income on a public register. Theresa May is still refusing to commit herself to a public inquiry or to having open registers for shell companies and secret trusts. Note that these are merely requirements for ending secrecy, not for changing the substance of the law, let alone for hanging the rich from lamp-posts.
However, the Government is merely being logical. The end of secrecy spells the beginning of the end of the practice, because the squirrelling away of money where the taxman can’t get at it is thoroughly hated – by people who don’t have large sums to squirrel, could not afford the services of tax accountants and, most important of all, are the ones who stand to lose. It is also deeply distasteful to many well-heeled citizens who have both the motive and the ability to engage in it, but who understand that it is corrosive of society.
What could all that money do if paid in full to the Treasury and put to its proper use? A recent study part-authored by the economist Gabriel Zucman (https://gabriel-zucman.eu/files/AJZ2017b.pdf) found that wealthy Brits had stashed about £300 billion – equivalent to 15% of national GDP – in offshore tax havens. “This would more than cover our entire educational budget into the 2020s. It is the equivalent of £350 million being paid into the NHS every week for the next 16 years…”
Oh, there it is, that £350 million!
The avoidance or evasion of tax – the first is legal, the second is not, but, whatever you call it, the result is the same – robs public services of the funds they need and contributes to an inequality which is already of shocking dimensions. Do we want to live in a civilised society? Then we have to do something about it.
Current suggestions are directed at abolishing the secrecy. By an Order of Council, the Government could force overseas territories such as the Cayman Islands to adopt tax transparency measures. “We could change the rules on Lords and Commons’ members’ interests so that all offshore holdings would have to be registered” (Aditya Chakraborrty, Guardian 7 Nov.) Zucman has called for the creation of a worldwide tax register.
Any of this would be a welcome first step. However, transparency is not enough. A lobby group representing offshore business spoke of having “superb penetration” at the higher levels of the UK government before the G8 summit in June 2013. It congratulated itself when measures far less radical than those originally proposed were agreed. A country in which that can happen should look hard at itself.
Here is the same point made more uncomfortably: “We’re not just complicit in what happens, we are central to its success,” said Margaret Hodge, MP, former chair of the Public Accounts Committee, in a recent adjournment debate on tax avoidance and evasion on the Isle of Man (zero tax on companies). She said funds from the British taxpayer were being used to enable the island to operate as a tax haven.
And here, perhaps, is part of the (intolerable) explanation: “HMRC is colonised by the tax avoidance industry and large corporations, who dominate its operations and are, in effect, allowed to write tax law” (Guardian, 6 November, article by Prem Sikka, Emeritus Professor of Accounting at the University of Essex). (My italics.)
Readers half-stunned by that last piece of information might reflect that David Cameron slashed the number of HMRC staff by 11,000 and that Theresa May plans to cut another 8,000.
It is legitimate to ask, in the light of this, whom our Government serves. It is not us, the people. Whom does Whitehall serve? The Government: that is its purpose. But, some will say, it is precisely for this reason that “the people” voted to leave the EU in the referendum; that vote was largely a protest about the way the country had been governed for decades in the interests of an elite.
Very well. Whom does Brexit serve?
Leave.EU was set up as a wholly-owned subsidiary of a finance firm based in Gibraltar that offered tax avoidance services. It specialised in “separating and relocating intellectual property and treasury functions to low- or no-tax jurisdictions.” Arron Banks, who contributed £8.5 million to Farage’s campaign, had been a substantial shareholder in the parent company (Guardian, 7 November 2015).
The association of Brexit with people who keep their money overseas is documented in a Guardian article of 9 November this year, ‘The Brexiters who put their money offshore.’ Here Arron Banks appears again, as co-owner of the Isle of Man’s Conister Bank, among whose clients was a businessman whose gambling firm was pursued by the US Dept of Justice for allegedly laundering billions of dollars in illegal proceeds. Charges remain outstanding. Banks himself is under investigation by the Electoral Commission for his contribution to Leave.EU’s funds.
Another familiar figure is Jacob Rees-Mogg, who has interests in an emerging markets fund in the Cayman Islands and Singapore. Andrea Leadsom’s brother-in-law runs a multi-billion-dollar hedge fund from Guernsey. Brexiteer James Mellon owns the Hoxton Pony in Shoreditch, which apparently is very hip, through an obscure arrangement involving a UK-registered company owned by an Isle of Man company with four shareholders. The Barclay brothers, who live in the Channel Islands and Monaco and whose Daily Telegraph is an unfailing source of poisonous misinformation about Europe, cloak their financial affairs behind a nominee shareholding in which their names do not appear on the register.
There is no suggestion, the Guardian emphasises, that any of the individuals it mentions are suspected of criminality. Of course not. We are talking about tax avoidance. They are all honourable men. But the argument has moved beyond that. It has moved into the sphere of morality, and it needs to move into what is legitimate in politics.
In January 2013 the European Union produced an action plan for new legislation that would end tax-avoiding practices among its member states. The plan came to fruition in the Anti-Tax Avoidance Directive, published on 28 January 2016 (https://ec.europa/taxation_customs/business/company-tax/anti-tax-avoidance-package_en).
As Prime Minister, David Cameron fought a doughty campaign against the EU measures. It is instructive to see how at two crucial points the lead-up to Brexit chimed exactly with the EU’s progress on tax reform. On 23 January 2013, less than a month after the EU presented its draft plan for the Directive, Cameron made a speech at Bloomberg in which he spoke of holding a referendum on whether Britain should remain in the EU.
Three years later, on 20 February 2016, within a month of the EU’s adoption of the Directive, he announced the date on which the referendum would be held.
The EU had stipulated the date by which the Directive has to be implemented by member states. It is 1 January 2019. That is just short of three months before the UK has to leave the Union. Theresa May is now exercising what little power she has to ensure that the departure date is written into British law.
A bit close, eh? But still…
The EU is now, after talking about it for a long time, drawing up a blacklist of tax havens. The UK’s favourite children – the Virgin Islands, the Caymans, Anguilla et al. – will be fingered. The list is expected in December.
That is close. On the other hand, who’s going to take any notice of a blacklist? Britain will soon be shot of the EU and all its works.
It’s impossible, at this point, not to see the apparition looming out of the fog that has long surrounded Brexit. It has been there all along, but it shuns publicity as vampires do the daylight. It cannot live with transparency, which means it cannot live with the EU and its meddlesome directives. The Brexit negotiations may appear to be a shambles; the Government is a shambles: for the vampire, none of this matters. Hard Brexit? The harder the better.
Get out quick and cut the rope.