Two days in. Lots of column inches. But what will it all mean for the future? Some embarrassment, a scalp or two, then business as usual? Or meaningful change?
Corbyn is right. We could, if we wanted to, compel ‘our’ tax havens to deliver transparency. This excellent Global Witness piece gives specific examples of a number of recent instances where we have legislated directly and against the will of British Overseas Territories.
Some writers assert that, somehow, tax is different from those examples. But there’s little to support those assertions. If you accept that you can cross the rubicon for one purpose it’s difficult to sustain an argument you can’t cross it for some other.
So, why don’t we?
It’s neither attractive nor, to me, plausible to suggest that the Conservatives are indifferent to the moral quality of the actions of those who avoid or evade tax – or those who facilitate it, be they professionals or tax havens. It is certainly true that the revelations so far have revealed a preponderance of individuals with some connection to the Conservative Party. But there is a natural and plausible explanation for this.
There is an almost perfect correlation between being an offshore tax avoider or evader and being wealthy. That correlation follows from the considerable costs of establishing and maintaining an offshore structure. There is also a correlation – less close but still – between being wealthy and voting Conservative. Accept the logic of these propositions and you avoid the need to impute anyone with a moral ugliness that experience tells me is a rarity, on any part of the political spectrum.
The explanation, I think, is more likely to be found in the Conservatives’ assessment of what the public interest demands, both here and in those Overseas Territories.
A substantial part of the City is engaged in the servicing of the global wealthy. We have ceased to be the holders of wealth and have instead become their butlers. The City is, when it doesn’t fall over at least, a huge contributor to the financial health of the UK. All of this poses a quandary: how much ugliness should we tolerate to sustain or even increase that contribution?
I don’t want to answer that question, yet at least. I just want to pose it. What price our moral principles?
So far as our tax havens are concerned, the picture is much the same.
Tax havens compete on a variety of criteria.
Some of these carry no moral component: political stability, language, proximity, sophistication of service, legal familiarity, judicial independence.
But some do: transparency (more is less) and opacity (less is more). And a whole variety of soft factors: what quality of information will local financial services professionals demand for compliance procedures, how quickly and enthusiastically will local tax authorities respond to requests for information from overseas tax authorities, how vigilant will they be when it comes to updating registers, what is their reputation with the tax authorities of real countries and so on.
Sophisticated players in the market will have a keen sense of where the various tax havens rest amidst this competitive ecology.
Disrupt that ecology and – this will be the Conservatives’ fear – you will kill the tax haven. It will cease to enjoy the position it did in the market and whatever wealth that position delivered to the population of the haven will be lost. What is the point of doing this when other tax havens continue?
The net gain to morality will be nil.
This will be the unspoken logic of the Conservative Party which bears the burden – so long as it remains in Government – of having to make hard decisions.
And this logic is, it seems to me, perfect. But also very limited.
Because collectively tax havens serve no useful purpose.
Their aggregate effect on the global economy is huge – and hugely negative. They disrupt the ability of Governments to achieve political ends through diplomatic means. They permit criminals to enjoy the fruits of their crimes. They enable to be hidden from the eyes of the electorate that which it should know. They facilitate the theft of public assets by public figures for private gain. And, of course, they diminish our Governments’ treasuries to the benefit of a wealthy few.
These factors are profoundly compelling.
And their presence – and their effects – has blighted our societies for decades, and will linger. It will linger for so long as Governments fail to demonstrate leadership.
The perfect logic that I described above I also described as limited. It is limited because it prefers the modest short term gains from protecting the contingent revenue streams of small haven economies to the substantial long term gains from tackling these profoundly negative effects.
Let me, against the background of that discursion, return to the question with which I started.
Where is the story going? Will we see meaningful change?
The electorate wants what looks to it like justice. But, or at least this is my view, politicians are apt to underestimate the strength of that desire for ‘justice’. And inclined, also, to underestimate the price the electorate will pay to have it.
The Conservatives are not ignorant of this public desire, of course. And they have a record – not unblemished but nor unimpressive – of tackling personal tax avoidance.
But on tackling evasion, I cannot claim to be optimistic about what the Government will do.
There is incontrovertible evidence of profound under-resourcing of HMRC. And the the appointment of Edward Troup, a civil servant’s civil servant, as Lin Homer’s replacement does not signal a desire to change HMRC’s culture so as to prioritise the signal banging up of one or two upper middle class tax evaders. The rhetoric, of course, thrills. But the evidence is that the reality will fall some way short.
But will we force our tax havens to up their game?
Here, too, I do not expect meaningful change. We will hear, again, the rhetoric designed to quieten the mob outdoors. But I do not believe the Conservatives’ instinct to preserve the status quo will change.
I do not think the mob will swallow what the Government would have it eat. We will continue to see the absence of delivery and not be distracted by the rhetoric. But this, of itself, will not deliver change.
The real value of stories like this is that they raise the political price of inaction. But for so long as Labour is not, electorally speaking, at the races the Conservatives can pay that higher price. The power of the electorate to compel change is dispersed by an absence of threat. The conservative instinct will prevail.
Stand back from all of this. Where are we?
The nature of the revelations – both their huge scale and their intimate detail, the quality of the names, the size of the sums, the ugliness of the conduct – cannot but take us a further step along a long road. But, without viable political challenge, I regret that I do not see meaningful change immediately ahead.Follow @jolyonmaugham
“A substantial part of the City is engaged in the servicing of the global wealthy.”
How much? If you mean servicing the very comfortably off – say top 10% of UK/G7,(people like you and me?), I suspect a great deal, most even. If you mean the type of people who bother to set up dodgy Panama companies, I suspect not very much. Think of the fund managers and life insurers like Legal & General, Prudential, Standard Life. They’re big. They deal with the mass market (or at least not oligarchs). Think of Lloyd’s, insuring stuff, not managing wealth. The largely high st banks. The banks managing auctions of government bonds or doing fx for obscure off shore companies like Unilever, Shell, Glaxo etc. The companies managing local govt pension funds. VC cos funding start ups.
This doesn’t knock down your main thesis, if anything the opposite. There’s plenty of stuff the City can (and does) do, without the UK having to kow tow to kleptocrats.
I recall Thames Water 500 Mn Operating on revenues of 1.5Bn paying no tax as all owed it all to pay Bermudan offshore loans. All seemingly with all party support for such ‘reform’. The issue is far bigger than a few tax dodgers and arguably it speaks to the whole project some call neo Liberalism.
I suspect real reform and any desire to do so to be somewhere between little and none in the vast majority of Westminster MPs.
“It is certainly true that the revelations so far have revealed a preponderance of individuals with some connection to the Conservative Party. But there is a natural and plausible explanation for this.”
Hmm….the fact that it is the (nauseatingly hypocritical) Guardian and BBC controlling the release of information might have something to do with it perhaps?
I don’t disagree but would put it differently. The top echelon of all the major political parties now has little or nothing in common with those who vote for them and indeed often despises them. Irony is dead when a scion of the Kinnock dynasty, formerly resident in Switzerland, can be MP for Port Talbot.
Furthermore there are increasing numbers of career politicians whose aim is to use politics to get very rich by leveraging influence, access and contacts. Inevitably such people gravitate towards the very wealthy and their advisers who can reward them for acting as intermediaries and advocates: think of the Blairs. This phenomenon is probably more marked in the Conservative Party but not uniquely so. What is perhaps unique in the Conservative Party is the extent to which it has sought funding from the super-rich in lieu of funding from the party members whom its leadership actively dislikes and wishes to neuter.
The UK has pursued a policy of trying to attract the ultra-wealthy to its shores, not least with generous tax breaks beyond the reach of ordinary voters and a distinctly hands-off approach to money laundering (at least in relation to the Central London housing market). That policy depends largely on tax havens. A serious clampdown on tax havens would require the political class to attack the social grouping on whom their prosperity is built. So I agree….it isn’t going to happen.
You ask where this story is going, but don’t seem to inquire into what I’d suggest is a key dynamic – the increasing technological difficulty of maintaining secrecy. As you observe, “the real value of stories like this is that they raise the political price of inaction”, but is this just a one off event, or part of a pattern? I’d suggest there is a pattern. So, not only will the pressure for change increase, the information needed will be easier to obtain, and those not indifferent to the morality are more likely to act.
Small ‘c’ conservatives – e.g. those who care about disrupting eco-systems, and in this case the workings of acceptable commerce and finance – will look for a way to manage this process. So a sort of ‘truth and reconciliation’ process for those whose money, or family money is now tainted.
The system often doesn’t benefit the tax havens themselves as much as you might think either. There is no known tax rate that the wealthy are content to pay and so probably even more tax avoidance/evasion within tax havens as they themselves enable elsewhere. Name a small tax haven that doesn’t have a fiscal deficit.
The social impacts are high, the benefits felt only by a small number, often ex-pats.
The super wealthy also have an assumption that because they pay more into the public purse than the average they should benefit more form state support. Take Branson et al demanding, at public expense, a longer runway in the BVI so they can use larger and fully loaded private aircraft.
That tax haven policies are as popular as they are is I believe as much to do with the tendency for politicians to be attracted to the wealthy as it is to any sound long term economic plan.
The issue that no one seems to be talking about is money laundering that is facilitated by the banks. The other issue of importance is how political leaders overseas are using havens to hide their wealth – the question is where does the great wealth come from if they’re just politicians, often from very poor countries. Funny the hand wringing left don’t raise this point.
Tax evasion and avoidance is not the main issue here. Corbyn et al bang on about Ian Cameron using Panama to avoid tax, but the reason for the use of the haven is not explained i.e. the need for funds to not pay tax so that investors only pay one level of tax not two. That’s not tax avoidance as such that’s just common sense and very common way of structuring a fund. All of the City will no doubt be doing this.
Umm. Julian. I am of the ‘handwringing left’ and talk about both of those points in the very blog post you’re commenting on.
I don’t accept that revoking the prohibition of homosexuality, the death penalty, and ending widespread political corruption sets a precedent for fiscal direct rule. One concerns fundamental human values. The other concerns…. Tax policies. One of the fundamental human values worth preserving is respect for democracy insofar as the rights of minorities are not prejudiced unconsciously, and the imposition of Direct Rule would actually be in opposition to these values.
In fact this is all shutting the door after the horse has bolted. Tax avoidance is incidental to the real crimes of money laundering, and in this respect the overseas territories have greatly improved. The dirty money has gone…