Tax evaders exposed: The HSBC Files

Annette Alstadsæter, Niels Johannesen and Gabriel Zucman in The Guardian


The statistics on inequality – those used, for instance, in Thomas Piketty’s bestseller, Capital in the Twenty-First Century – only include the income and wealth the taxman sees. So how high is inequality when also accounting for what he doesn’t see? Recent leaks from tax havens suggest the gap between the rich and the rest is even wider than we think.
Tax records are invaluable for the study of economic inequality. They contain detailed information about the income (and, in some countries, wealth) of taxpayers. Much of this information comes directly from employers and banks, and is therefore reliable. And because tax records exist as far back as the early 20th century, they can be used to shed light on the long-term evolution of inequality.

The graphs published on the World Wealth and Income Database, for example, show just how powerfully this information can inform the public debate. The top 1% income share is now closely scrutinised by journalists and policymakers in the US, where the rise of inequality has been particularly extreme; it even gave the Occupy movement its motto: “We are the 99%.”

But for all their merits, tax data raise an obvious issue: by their very nature, they entirely miss tax evasion. Is this a serious problem? That depends: if tax evasion is equally prevalent among rich and poor, measured inequality will be unaffected. But if the rich dodge taxes more than others, tax records will underestimate inequality.

At the time of the 2007 leak, HSBC Switzerland was a major actor in the offshore wealth management industry. Photograph: Harold Cunningham/Getty Images

Before now, there hadn’t been any attempts to address the measurement of global tax evasion systematically. The reason is simple: the lack of comprehensive information about who skirts taxes. The key data source used in rich countries to study tax evasion is random tax audits – but these audits do not capture tax evasion by the very wealthy, because few of them are audited, and because random audits fail to detect sophisticated forms of evasion involving shell companies and hidden accounts.


The higher one moves up the wealth distribution, the higher the probability ​​of hiding​ assets

In our recent study, however, we exploited a massive trove of data leaked from HSBC Switzerland, the so-called HSBC files, to fill this gap. In 2007 a systems engineer, Hervé Falciani, extracted the internal records of HSBC Private Bank, the Swiss subsidiary of HSBC. In 2008, Falciani turned the data over to the French government, who shared it with foreign tax administrations. The documents leaked by Falciani included the complete internal records of more than 30,000 clients of this Swiss bank in 2006-07.

At the time of the leak, HSBC Switzerland was a major actor in the offshore wealth management industry. It managed US$118.4bn – about 4% of all the foreign wealth managed by Swiss banks. This is a unique source of information through which to study tax evasion, because the leak can be seen as a random event, and it comes from a large (and, the available evidence suggests, representative) offshore bank.

We also made use of the Panama Papers, which last year revealed the identity of the shareholders of shell companies created by the Panamanian firm Mossack Fonseca. Just as with HSBC, this leak is valuable as it can be seen as a random event and involves a prominent provider of offshore financial services. The Panama Papers, however, have one drawback: they do not allow us to estimate how much tax was evaded (if any) by the owners of the Mossack Fonseca shell companies. It is not illegal per se to own shell corporations in Panama or elsewhere.

  Leaked documents revealed the identity of the shareholders of the shell companies created by the Panama-based law firm Mossack Fonseca. Photograph: Kin Cheung/AP

We combined random audits with these new sources of information to shed light on who really evades taxes in Denmark, Norway and Sweden – and the results are striking.

The higher one moves up the wealth distribution, the higher the probability of hiding assets. Scandinavian households in the top 0.01% of the wealth pyramid – the ultra-rich, who own more than $40m in net wealth each – are 250 times more likely than average to hide assets. Furthermore, the ultra-rich HSBC customers had considerably more wealth in their accounts than other customers – so although they were very few in number, they owned around half of all the wealth hidden at HSBC.


In Norway, the super-wealthy appear to be 30% wealthier when all the wealth hidden in tax havens is taken into account

This pattern is not specific to HSBC or the Panama Papers. Over the last few years, thousands of Norwegians and Swedes have voluntarily declared previously hidden assets under a tax amnesty. Here again, the super-rich are found to own half of the total amount of offshore wealth.

So what are the consequences for inequality? At the very top of the pyramid, it is much greater than previously estimated. In Norway, where the available wealth data is particularly detailed, the super-wealthy appear to be 30% wealthier than previously thought, when all the wealth hidden in tax havens is taken into account. The share of wealth owned by the top 0.1% increases from 8% to 10%.

Since Scandinavians generally pay their taxes and hide little wealth in total, our results are likely to be even stronger in Great Britain and elsewhere. A more accurate measurement of tax evasion would likely increase inequality levels even more than in Scandinavia.

These results underscore a basic truth: in a world where wealth is globalised and where a big industry has specialised in helping the ultra-rich avoid and sometimes evade their taxes, our ability to track great fortunes – and to tax them appropriately – faces considerable challenges.

But does this mean nothing can be done? Not at all.

It is possible to collect much better information on wealth and its distribution. Progress has already started in this area, as a number of tax havens have agreed to automatically exchange bank information with foreign countries’ tax authorities – a major evolution since the time of the HSBC leak.

But this policy faces an obvious issue: what are the incentives for offshore bankers to provide truthful information? After all, these are the same people who for decades have been hiding their clients behind shell companies, and sometimes even smuggling diamonds in toothpaste tubes or handing out bank statements concealed in sports magazines – all of this in violation of the law and the banks’ stated policies. Yet it still should be possible to secure their cooperation, if they face stiff enough sanctions for non-compliance.

More broadly, the key to successfully fighting tax evasion is to change the incentives for the providers of wealth concealment services. Over the last few years, a number of banks have pleaded guilty in the US to criminal conspiracies to defraud the Internal Revenue Service – yet they were able to keep their banking licences, and the fines they had to pay paled in comparison to their profits. A more ambitious approach would put criminal organisations out of business. If tax evasion ceases to pay, it will disappear.

Do we really want post-Brexit Britain to be the world’s biggest tax haven?

Molly Scott Cato in The Guardian

Of all my political activities in the European parliament my work on challenging tax-dodging by wealthy individuals and corporations is perhaps the area where the most has been achieved.

Yet as a British MEP it has been a constant source of embarrassment to learn the central role played by the City of London and the UK’s overseas territories in the network of tax havens that facilitate a tiny minority to live beyond tax law.

Amber Rudd facing calls to clarify involvement in tax havens


This was first demonstrated by the Panama Papers and now confirmed by theBahamas leaks. I am left wondering, in post-EU referendum Britain, whether we will see the UK government challenge or collude with this tax-avoidance industry. If the response to the discovery that home secretary Amber Rudd was previously director of two asset-management companies based in the Bahamas is anything to go by, alarm bells should be ringing.

My own attempts to challenge Rudd have led me to believe that rightwing media figures, along with the Conservative government and the banks, are keener to shut down legitimate lines of inquiry on tax dodging than they are to shut down tax havens.

This was most clearly demonstrated to me during an interview with Andrew Neil on the Daily Politics show. Neil defended Rudd’s actions on the grounds there was no proof she had done anything illegal. Yet the whole purpose of tax havens is to allow the wealthy to hide behind a wall of secrecy legally.

Indeed, we only know of Rudd’s past career because of the Bahamas leaks. When asked in interview some months ago if she had money in any offshore trusts, Rudd replied that she didn’t. She also defended David Cameron over his father’s investment fund in the Bahamas that was exposed by the Panama Papers. At least Cameron had the defence that the decision to set up a trust in the Bahamas was taken by his father. It was Rudd’s own decision to become embroiled in two offshore companies in the Bahamas, something she failed to disclose.

Generally, people do not set up companies in the Bahamas to enjoy the subtropical climate. They are more likely drawn there by the fact the islands demand no income, corporate or wealth taxes from individuals investing in offshore companies. No evidence has emerged that Rudd herself or the companies avoided paying tax but at the very least, a fuller statement explaining the purpose of the directorships and whether she personally profited from them seems reasonable.

Unless Rudd makes such a statement it is difficult to see how Theresa May can continue to have confidence in her as home secretary. During her short leadership campaign and on the steps of No 10, May spoke noble words about the need to turn Britain into a country that works for the many, not the few. This is precisely the opposite of what tax havens do. They are a system used by a tiny elite composed of the super-wealthy precisely to avoid contributing their fair share to society.

So is Rudd on the side of the many, whose services have been cut to the bone because of insufficient tax revenues, or is she on the side of the wealthy few who avoid paying taxes?

Follow the money: inside the world's tax havens



Far from being a sideshow, what some are calling Ruddgate goes to the heart of the question of what type of society we want in the wake of the EU referendum. Will we follow the lead taken by Europe in promoting fair taxation, most notably demonstrated in recent weeks by EU competition commissioner Margrethe Vestager, who ordered Apple to pay €13bn in back taxes? Or will we follow the route being pushed by some hard-Brexit supporters and become one of the globe’s leading tax havens? The answer depends on the actions we take now, and whether we have the courage to demand the highest standards of those who govern our country.

The European parliament’s committee investigating the Panama Papers leaks already has the chancellor Philip Hammond, his predecessor Osborne and former prime minister David Cameron on our invitation list. Following the latest revelations, we will be adding the name of the home secretary.

Your new iPhone’s features include oppression, inequality – and vast profit

Aditya Chakrabortty in The Guardian


Human battery hens make Apple’s devices in China. The company, which has a bigger cash pile than the US government, symbolises a broken economic system

Illustration by Andrzej Krauze


Soon enough, we will see the first obituaries for openness, free trade and globalisation. When those writers ponder how wealthy countries turned towards the politics of Donald Trump and Nigel Farage, they should devote a large chapter to Apple. Because the world’s richest company is a textbook example of how the promises made after the fall of the Berlin Wall have been made a mockery of.

Whatever marvels have been shoved into the new iPhones, the devices serve to increase the gulf between the super-rich and the rest of us, bilk countries of rightful tax revenues, and oppress Chinese workers even while depriving Americans of high-paying jobs. Arrogant towards critics and governments, glutted with cash and yet plainly out of ideas, Apple is elegant shorthand for a redundant economic system.
None of this is how we’re meant to think of Apple, the multinational that is both on your side yet restlessly questing ahead. While launching the iPhone 7 this month, its marketing chief, Phil Schiller, explained why this model came without a earphone socket: “It really comes down to one word: courage. The courage to move on, do something new, that betters all of us.” Such patchouli-scented Californian dipshittery was lapped up by the 7,000-strong crowd and lightly mocked by the press – but it also helps to obscure some of the less tolerable aspect of the iPhone business model, such as the conditions in which it is made.

If you own an iPhone it was assembled by workers at one of three firms in China: Foxconn, Wistron and Pegatron. The biggest and most famous, Foxconn, came to international prominence in 2010 when an estimated 18 of its employees tried to kill themselves. At least 14 workers died. The company’s response was to put up suicide nets, to catch people trying to jump to their death. That year, staff at Foxconn’s Longhua factory made 137,000 iPhones a day, or around 90 a minute.

One of those attempted suicides, a 17-year-old called Tian Yu, flung herself from the fourth floor of a factory dormitory and ended up paralysed from the waist down. Speaking later to academic researchers, she described her working conditions in remarkable testimony that I then covered for the Guardian. She was essentially a human battery hen, working over 12 hours a day, six days a week, swapped between day and night shifts and kept in an eight-person dorm room.

After the scandals of 2010, Apple vowed to improve conditions for its Chinese workers. It has since published a number of glossy brochures extolling its commitments to them. Yet there is no evidence that the Californian firm has given back a single penny of its gigantic profit margins to its contractors to ensure better treatment of the people who actually make its products.

Over the past year, the US-based NGO China Labor Watch has published a series ofinvestigations into Pegatron, another iPhone assembler. It sent a researcher on to the assembly line, interviewed dozens of Pegatron staff and analysed hundreds of pay stubs. Among its findings are that staff still work 12 hours a day, six days a week – one and a half hours of that unpaid. They are forced to do overtime, claims the NGO, and provided with illegally low levels of safety training.

The researcher was working on one iPhone motherboard every 3.75 seconds, standing up for the entirety of his 10.5-hour shift. Such is the punishment endured at Apple’s contractors to make a living wage, apparently.

FacebookTwitterPinterest Tim Cook with dancer Maddie Ziegler. The Apple CEO ‘rejects a €13bn tax bill from the EU as ‘political crap’’. Photograph: Josh Edelson/AFP/Getty Images

The Shanghai local government has raised the minimum wage over the past year; Pegatron has responded by cutting subsidies on things such as medical insurance so that the effective hourly pay for its staff has fallen.

When questioned about these reports, Pegatron provided a statement that read in part: “We work hard to make sure every Pegatron facility provides a healthy work environment and allegations suggesting otherwise are simply not true … We have taken effective measures … to ensure employees do not work more than 60 hours per week and six days per week.”

At another of Apple’s major contractors, Wistron, a Danish human-rights NGO last year found extensive evidence of forced student labour. Teenagers doing degrees in accountancy or business management were sent for months to an assembly line at Wistron. This is a serious violation of International Labour Organisationconvention, yet investigators for Danwatch found evidence that thousands of students were doing the same work and backbreaking hours there as the adults – but costing less.

The teenagers told Danwatch that they were working against their will. “We are all depressed,” one 19-year-old girl said. “But we have no choice, because the school told us that if we refused, we would not get our diploma.” Despite several requests for comment, Wistron did not respond.

That investigation was not at a factory making iPhones, but Apple confirmed that Wistron and Pegatron were two of their major assemblers in China. While it did not wish to say anything on the record, Apple’s press officers pointed me to the audits it had commissioned into its supplier factories. Yet the inspections are almost conveniently skimpy.

Look at the report Apple commissioned into Foxconn in 2012, after those suicide attempts. Foxconn is the largest private employer in China, with around 400,000 workers at the Longhua factory alone. Yet the report for Apple, complementary to an investigation already being carried out by the Fair Labor Association, admits to looking at just three of those plants for three days apiece. Jenny Chan, one of the foremost scholars of Chinese labour abuses and co-author of the forthcomingDying for an iPhone, calls it “parachute auditing – a way to allow ‘business as usual’ to carry on”. A very profitable way, as it happens. While iPhone workers for Pegatron saw their hourly pay drop to just $1.60 an hour, Apple remained the most profitable big company in America, pulling in over $47bn in profit in 2015 alone.

What does this add up to? At $231bn, Apple has a bigger cash pile than the US government, but apparently won’t spend even a sliver on improving conditions for those who actually make its money. Nor will it make those iPhones in America, which would create jobs and still leave it as the most profitable smartphone in the world.

It would rather accrue more profits, to go to those who hold Apple stock – such as company boss Tim Cook, whose hoard of company shares is worth $785m. Friends of Cook point to his philanthropy, but while he’s happy to spend on pet projects, he rejects a €13bn tax bill from the EU as “political crap” – whileboasting about how he won’t bring Apple’s billions back to the US “until there’s a fair rate … It doesn’t go that the more you pay, the more patriotic you are.” The tech oligarch seems to think he knows better than 300 million Americans what tax rates their elected government should set.

When the historians of globalisation ask why it died, they will surely find that companies such as Apple form a large part of the answer. Faced with a binary choice between an economic model that lavishly rewarded a few and a populism that makes lavish promises to many, between Cook on the one hand and Farage on the other, the voters went for the one who at least didn’t bang on about “courage”.

Poor little rich kids – the perils of inheriting vast wealth

Emine Saner in The Guardian

It is reported that when the 6th Duke of Westminster, who died this week, realised at the age of 15 that he was heir to his family’s immense fortune, he dreaded it – the responsibility, the knowledge that he hadn’t earned it, the isolation it would bring him. He would have prepared his son for the eventuality of becoming duke, although neither would have wanted to think it would happen as early as it did. On Tuesday, Gerald Grosvenor died suddenly at the age of 64; his son Hugh, now the 7th Duke of Westminster, is just 25 and inherits the family’s £9.3bn fortune.

Aside from the trauma of losing a parent – having money does not ease the pain of bereavement – the 25-year-old finds himself in both an enviable, and unenviable, position. On the one hand, he becomes one of the richest men in the world; on the other, money didn’t bring happiness to his father, who appeared to find his title and wealth a burden. “Given the choice I would rather not have been born wealthy, but I never think of giving it up,” he said once. “I can’t sell it. It doesn’t belong to me.”

The Duke of Westminster



It is, however, very difficult to feel sorry for the rich, which is, in itself, a problem for many of them. “They know that others have no sympathy for them, and no understanding of the situation they’re in,” says Thayer Willis, author of Navigating the Dark Side of Wealth: A Life Guide for Inheritors, who runs a counselling business helping the rich deal with the psychological challenges of wealth. “They know not to go around whining and expecting people to feel sorry for them.”

But there are serious challenges that come from inheriting vast fortunes, she says, particularly at a young age. Willis knows many of them herself – she was born into the family that started the Georgia-Pacific Corporation, a timber company worth billions. “I stumbled through my 20s and made a lot of mistakes,” she says.

“For all of us, our 20s and 30s are the ‘building years’, when we’re meant to get out in the world, figure out who we are, what we like to do, who we like, who we like to date,” she says. “Having a tremendous amount of financial wealth come into your life at that point really messes with motivation. All of a sudden the question becomes: ‘What do I need to do to manage this wealth?’ instead of: ‘How do I identify and clarify who I really am?’ People’s motivation to be around you becomes questionable. Are they attracted to me or to this wealth?” These are “definitely first-world problems, but it certainly messes with the psychological development of that young adult”. In her 30s, Willis settled down, trained as a psychotherapist and became a wealth counsellor.

If it’s so awful – an obvious question – why not give the money away? “Some people think of that, usually to the horror of the family. Older family members understand what this money can do in terms of providing a resource for any kind of emergency, or starting a business, or philanthropy.”

For inheritors of wealth going back generations, there is a sense, as Grosvenor said, that they are mere custodians and the money isn’t theirs to give away or lose. “I’ve seen some quite young heirs who really understand the dynastic vision of a family from a pretty early age,” says Julian Washington, head of intermediary relationship management at RBC Wealth Management. “They don’t want to be the weak link in the chain when the family story is told. In my experience, when you deal with old-money families, if you want to call them that, they tend to be pretty good at educating their next generation, because typically they’ve been doing it for centuries.” And when someone – a male member of the family, thanks to outrageous primogeniture – comes to inherit, “more often than not they’re in a pretty good place because they come to it with all that tradition and they understand the nature of the shoes they’re stepping into”.

Mark Zuckerberg and Priscilla Chan Zuckerberg have decided to give away 99% of their fortune – but their daughter, Max, could still inherit $450m. Photograph: AP

Plenty of members of the super-rich have already decided not to burden their children with vast, unearned fortunes in the first place – it is enough that they have had expensive educations and all the opportunities of a privileged start in life. Warren Buffett’s famous take on inheritance is to leave his children “enough money so that they would feel they could do anything, but not so much that they could do nothing”. It has been reported, though not confirmed, that Bill Gates plans to leave his children a meagre $10m (£7.7m) each from his $76bn fortune. Mark and Priscilla Zuckerberg have pledged to give away 99% of their $45bn pile(although it’s all relative – this still leaves them, and their daughter, with $450m). Not quite on the same financial scale, Nigella Lawson has said she isn’t planning to leave her children anything: “It ruins people not having to earn money.”

Sam Roddick, the daughter of the Body Shop founder Anita Roddick, didn’t know that her mother, who died in 2007, had planned to give away her entire £51m fortune. “We found out when it was published in a Daily Mail article,” she laughs. It wasn’t entirely a surprise – her parents were socialists, rather than socialites, and their business was famous for its fair-trade principles. And it wasn’t personal. Cutting one’s child out of your will can, to some, seem like “a deep act of abandonment. I never had that abandonment because I had a healthy relationship with her. I know other people who haven’t been given money and it has been a huge act of aggression.”

Duke's £9bn inheritance prompts call for tax overhaul



Roddick was also unusual among the children of the rich in that she hadn’t grown up surrounded by wealth. She was largely brought up by her working-class grandmother, “and working-class values – you work hard, you earn your keep and you contribute to society. Entitled people from inherited wealth are all about other people being in service to them.”

She has observed the very wealthy people she has met over the years. “They are isolated from normal society,” she says. With the extremely wealthy, “relationships become transactional, and that is something that is extraordinarily emotionally damaging. A lot of very wealthy people are not accountable to their community, they’re not accountable to the people they love, they show their power and control through transaction and they are unhappy, from what I can tell. The people I know who are very wealthy and are happy are all contributing something to society.” Until we sort out the rules that allow vast fortunes held in trusts, as the Grosvenor estate is, to avoid hefty death duties and be passed down the generations, it’s something for the new Duke of Westminster and his future male heirs to bear in mind.

Trusts keep wealth in the hands of the few. It’s time to stop this tax abuse

Richard Murphy in The Guardian

If there is a name that is synonymous with tax avoidance in the UK, it is that of the Duke of Westminster. The duke in question was, admittedly, the second duke, who in 1936 won an infamous tax case that permitted him to pay his gardeners in a way that avoided a tax liability. He achieved abiding fame as a consequence of the opinion of Lord Tomlin, who in his judgment on that case said: “Every man is entitled if he can to order his affairs so that the tax attracted under the appropriate act is less than it otherwise would be. If he succeeds in ordering them so as to secure this result, then, however unappreciative the commissioners of Inland Revenue or his fellow taxpayers may be of his ingenuity, he cannot be compelled to pay an increased tax.”

That statement has, to a large degree, been both the foundation of and justification for all tax avoidance activity in the UK since. That this activity continues is evidenced by the fact that the sixth duke is said to have left an estate worth £9.9bn upon his death this week to his son and yet, despite the fact that inheritance tax is supposedly payable on all estates on death worth more than £325,000, it has been widely reported that very little tax will be due in this case. It seems that the sixth duke has put the second to shame: his forebear saved a few pounds on his wages bill while the sixth has avoided something approaching £4bn. He may in the process have even outdone the fifth duke, who argued the fourth duke died of a war wound 232 years after he suffered it to escape all charges on the estate in the 1960s.

His likely motives for doing so can be easily summarised: there may be greed involved; a belief that the duke’s heirs are better entitled to this property than anyone else; and a hostility to any claim that the state might make on property that has been apparent in the UK aristocracy since the time of the Crusades.

The English legal concept of a trust is believed to have been developed during that era, when knights departing the country with no certainty of returning wanted to ensure that their land passed to those who they thought to be their rightful heirs without interference from the Crown. Trusts achieved that goal and the concept has remained in existence ever since, representing the continual struggle of those with wealth to subvert the rule of law that may apply to others but that they believe should not apply to them.

Recent political challenges have not ended the resulting abuse. Labour tried to introduce effective tax charges on inheritance in the 1970s, the Conservatives undermined them a decade later, and every subsequent attempt to tackle tax abuse using trusts (and Gordon Brown made many), has by and large left existing arrangements intact, only seeking to prevent abuse in new arrangements. As if to add insult to injury, the 2013 general anti-abuse rule, which was introduced by the coalition government and supposedly negated the decision by Lord Tomlin noted above, cannot be applied retrospectively: anything done by a duke before that date is outside of its scope.

So why has this tax avoidance been allowed to continue? First, it’s because no one in the UK has, since 1980, had the political will to tackle the use and abuse of trusts – even though continental Europe has shown it is perfectly possible to run an economy without them. Second, it’s down to the continuing power of the aristocracy and their chosen professional agents (lawyers, accountants, bankers and wealth managers) who have been willing to compromise themselves in exchange for fees to perpetuate the situation. And third, it’s because the Conservatives, in particular, have been keen to let the situation continue unchanged as they support the largely unfettered inheritance of substantial wealth. 

Another issue is that we know so little about trusts even when they are at least as powerful as companies and are even more commonly used for tax abuse. This is because of a mistaken perception of privacy, which should only be due to individuals and not artificial arrangements created by law, which trusts are. This can be corrected: we need transparency and that means a full register of trusts and their accounts on public record above modest financial limited, as for companies.

What can be done about this? In addition to the points already noted, the obvious solution is to abolish the inheritance tax reliefs that permit this tax avoidance, whether that be for trusts themselves or for those who own private companies and agricultural land. Inheritance tax assumes that the children of the wealthy are the rightful best next generation of managers of these assets and so lets them be passed on to them tax free, perpetuating wealth concentration in the process.

To put it another way, 800 years of claims by an elite to be above the law applicable to everyone else so that wealth can remain in the hands of the few has to be brought to an end. And if now is not the time to do it, I am really not sure when it will be.

More freeloaders than free market. How Britain bails out the business chiefs

 

‘In an age of untrammelled greed, company executives are rewarded for cannibalising their businesses and bilking their staff.’ Illustration by Andrzej Krauze

 Aditya Chakrabortty in The Guardian


On Wednesday, two very different men will have to explain themselves. Both appear in London, to a room full of authority figures – but their finances and their status place them at opposite ends of our power structure. Yet put them together and a picture emerges of the skewedness of today’s Britain.

For the Rev Paul Nicolson, the venue will be a magistrate’s court in London. His “crime” is refusing to pay his council tax, in protest against David Cameron’s effective scrapping of council tax benefit, part of his swingeing cuts to social security. In order to pay for a financial crisis they didn’t cause, millions of families already on low incomes are sinking deeper into poverty. In order to pay bills they can’t afford, neighbours of the retired vicar are going without food. The 84-year-old faces jail this week, for the sake of £2,831.

Meanwhile, a chauffeur will drive Philip Green to parliament, where he’ll be quizzed by MPs over his part in the collapse of BHS. A business nearly as old as the Queen will die within a few weeks, leaving 11,000 workers out of a job and 22,000 members of its pension scheme facing a poorer retirement.

There the similarities peter out. Nicolson was summoned to court; Green wasn’t going to bother showing up at Westminster. When the multibillionaire was invited by Frank Field to make up BHS’s £600m pension black hole, he demanded the MP resign as chair of the work and pensions select committee.

But then, Green is used to cherry-picking which rules he plays by. Take this example: he buys Arcadia, the company that owns Topshop, then arranges for it to give his wife a dividend of £1.2bn. Since Tina Green is, conveniently, a resident of Monaco, the tax savings on that one payment alone are worth an estimated £300m. That would fund the building of 10 large secondary schools – or two-thirds of the annual cut to council tax benefits.

Just as Green underinvests in society, so he underinvests in his companies. The man to whom he sold BHS last year, Dominic Chappell, told MPs last week that “for the past 10 or 12 years there had been little or no inward investment in the stores”. A staple of the high street had been run down.

Then again, what incentive has he had to do otherwise? Green bought BHS with just £20m of family money and borrowed the rest. Within four years, he had pulled £400m of dividends out of the firm – 20 times his initial outlay.

He used the same tactic to buy Arcadia – stumping up £9.2m in equity and taking out £1.2bn three years later. This isn’t retailing as you might think of it, it’s balance-sheet shazam – the kind of financial engineering that posed as real business in Britain’s bubble years. And it’s enabled Green to turn major retailers into what Robert Peston, in Who Runs Britain?, calls “giant gushers of cash”.

But in today’s Britain, the poor are forced to pay the unaffordable, while the tax-avoider is honoured for his contribution to society. Green was knighted by Tony Blair, while David Cameron appointed him a government adviser.

Just as Green pretends to be a cheeky chappy even though he went to boarding school, so any charlatan in pinstripes can claim to be a businessperson – and be handsomely rewarded. The barons who run our rail services tout themselves as “investors”, but for every quid they put into their trains, they take out £2.47. That level of underinvestment ensures commuters are never sure of getting in on time and having a seat – but shareholders and managers can make a fortune.

From Margaret Thatcher through Tony Blair to David Cameron, successive prime ministers have preached the virtues of free enterprise. We’ve ended up with an economy comprised of what parliament’s public accounts committee calls “quasi-monopolies” – from water to banks to electricity to public outsourcing – and big businesses being treated as money-sponges to be wrung dry by their owners and managers.

In the 1970s, £10 of every £100 in corporate profits was paid to shareholders. Now between £60 and £70 of every £100 is handed out. Workers, companies and the economy are thus starved of investment and growth opportunities so that, as Andy Haldane at the Bank of England warns, firms are “eating themselves”.

In an age of untrammelled greed, company executives are rewarded for cannibalising their businesses and bilking their staff. The typical FTSE-100 boss is now on a total pay of around £5m, the High Pay Centre calculates, even while the average employee is still earning less in real terms than in 2008.

This is less about the free market than freeloading. The banks collapse and are bailed out. The Sports Direct billionaire Mike Ashley walks away from a collapsed business, giving hundreds of workers 15-minutes notice of redundancy – and handing taxpayers the £700,000 bill to clean up the mess. Tax-avoider Amazon receives tens of millions of public money to build warehouses, and even has a road in Swansea built for it. Richard Branson takes £28m to open a call centre in Wales.

The public pay for apprenticeships, so that companies get readymade workers. We shell out for upgrading the railways. Most of all, we top up poverty pay. Official figures show that 37% of working-age households in this country now take more from the public purse than they pay in. Not because they’re lazy or unemployed – employment has never been so high – but because their bosses can rely on the rest of us to pay their way.

Survival of the fittest? This is a deformed capitalism, barely worthy of the name – and it won’t improve by slinging a few rotten tomatoes in parliament. We need a working capitalism, where the public no longer give away their protections and subsidies for free – but instead make businesses take their responsibilities seriously.

If rail operators rely on taxpayer billions, they should train staff and pay them a living wage. Why shouldn’t big supermarkets that need public planning permission and licensing to trade be required to stock some locally sourced goods? And why shouldn’t local and central government, which allocate billions in procurement and tendering, foster a diversity of business models – from not-for-profit to mutually owned.

Some of you may think such measures impossible, others may see them as baby steps. They should be the first heaves on the pendulum, turning our economy away from the interests of the wealthy to the rest of us.

Last week Nicolson promised: “I shall start paying my tax again when they stop taxing benefits.” Good for him. The rest of us taxpayers should do the opposite: asking businesspeople what they’ll do to deserve our corporate welfare. That question should not just be put to Green and Ashley, but to those who run all our major corporations. Otherwise, we’re merely chasing out a few big names and hanging up a sign over Britain that reads: “Under new owners, business as usual.”

Offshore finance: more than £12tn siphoned out of emerging countries

Analysis shows £1.3tn of assets from Russia sitting offshore, as David Cameron prepares to host anti-corruption summit.

 

Russian banknotes. A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China. Photograph: Maxim Zmeyev/Reuters


Heather Stewart in The Guardian


More than $12tn (£8tn) has been siphoned out of Russia, China and other emerging economies into the secretive world of offshore finance, new research has revealed, as David Cameron prepares to host world leaders for an anti-corruption summit.

A detailed 18-month research project has uncovered a sharp increase in the capital flowing offshore from developing countries, in particular Russia and China.

David Cameron under pressure to end tax haven secrecy



The analysis, carried out by Columbia University professor James S Henry for the Tax Justice Network, shows that by the end of 2014, $1.3tn of assets from Russia were sitting offshore. The figures, which came from compiling and cross-checking data from global institutions including the International Monetary Fund and the United Nations, follow the Panama Papers revelations of global, systemic tax avoidance.

Chinese citizens have $1.2tn stashed away in tax havens, once estimates for Hong Kong and Macau are included. Malaysia, Thailand, and Indonesia – all of which have seen high-profile corruption scandals in recent years – also come high on the list of the worst-affected countries.

Henry, a former chief economist at consultancy McKinsey, told the Guardian his research underlines the fact that tax-dodging is not the only motivation for using tax havens – criminals and kleptocrats also make prolific use of their services, to keep their wealth secret, and their money safe. He said the list of users of offshore jurisdictions is like the cantina scene in Star Wars, where a motley group of unsavoury intergalactic characters is assembled. Henry said: “It’s like the Star Wars scene: you have the tax dodgers in one corner, the arms dealers in another, the kleptocrats over here. There’s also those using tax havens for money laundering, or fraud.”

Oil-rich countries including Nigeria and Angola feature as key sources of offshore funds, the research finds, as do Brazil and Argentina. Henry said the owners of this hidden capital are often so keen to secure secrecy and avoid their wealth being appropriated back home, that they are willing to accept paltry financial returns rather than investing it in ways that might promote economic development. Charging just 1% tax on this mountain of offshore wealth would yield more than $120bn a year — almost equivalent to the entire $131bn global aid budget.

The TJN is urging Cameron to push for agreement on a series of issues at this week’s summit, including a tougher crackdown on the banks, lawyers and other professionals who facilitate financial secrecy; and an obligation on all politicians to make their personal financial situation transparent.

The prime minister published a summary of his tax affairs last month, after the Panama Papers leaks revealed that his father had set up an investment fund, Blairmore, based in the offshore jurisdiction of Panama.

Henry argued that when senior figures in authoritarian states such as China use tax havens to guard their money safely, they are effectively free-riding on the legal and financial systems of other countries. “All of these felons and kleptocrats are in a way essentially dependent on the rule of law when it comes to protecting their money,” he said.

He said it was not just exotic locations such as the Cayman Islands where money can effectively be hidden, but also some US states, such as Delaware, where it is possible for foreign investors to start up and run a company without making clear its ultimate ownership – something all UK firms will have to do from later this year.

It's obvious that Jeremy Corbyn is the real tax dodger – that's why he paid more tax than he owed

Now we know that the Labour leader has 'taken £1.5m from the state'. Thank goodness we have intrepid investigative reporters who can multiply his salary by 34

Mark Steel in The Independent

Jeremy Corbyn filed his tax return late AFP


It was highly moving to hear our Prime Minister explain that the reason he gave misleading answers about benefiting from offshore tax arrangements was because he was angry with comments made about his dad. It makes you realise that, when it comes to tax avoidance, the Camerons are the real victims.

Offshore tax deals may deprive the country of billions of pounds, but that’s only money. Insulting comments are made about your father, such as ‘did you benefit from his offshore tax account?’ would make anyone get angry and confused, and spend all week implying you didn’t benefit when you did.

I remember when someone asked me if my dad liked bananas, and for the next month I told everyone I was the world discus throwing champion. Being devious was a natural reaction to the anger.

How dare people spread smears such as ‘he set up an offshore company in the Bahamas’, when the only evidence he did any such thing was that he’d set up an offshore company in the Bahamas. Some people even insinuated the reason the millions of pounds were placed in the Bahamas was to avoid tax. But there are many other valid explanations, such as the need to keep the money warm.

But now, at last, some people are directing questions at the real tax dodger: Jeremy Corbyn. According to the Daily Telegraph, Corbyn has “taken £1.5m from the state”, and the sneaky method he’s used is to “make this from his salary as an MP” (over 34 years).

Another MP is quoted as saying this revelation is “remarkable.” Thankfully there are dedicated journalists prepared to root out this astonishing figure – by multiplying his annual salary by 34. We must be grateful to those gallant crusaders prepared to go to such lengths to expose this scandal.

But this is only the start. Further investigations reveal if Corbyn lives another 80,000 years, and remains an MP for that time, he’ll have taken more off the state than the entire defence budget of Argentina. Even more remarkable, compared to someone travelling on a rocket flying at close to the speed of light, his week would last as long as one of their minutes, meaning he could make a million pounds EVERY SPACEMAN DAY.

That’s socialists for you.

Having published his tax returns, it also emerged Corbyn was fined for sending in his accounts late, which David Cameron tried to make a joke about. This was reassuring because it suggests he’s got over the deep trauma he suffered last week. And you can understand his point: as any businessman knows, it’s far better to be paid nothing on time rather than the right amount a week late.

It also turns out Corbyn paid too much tax, having stated he earned more than he did. We could quibble about the too much/too little detail – but he paid the wrong amount. This seems to be the Conservative argument about tax avoidance: we’re all up to it in our own way, so if you give your son three quid for mowing the lawn without paying VAT, you’re no different to an investment banker squirreling £10bn in the Virgin Isles so he can keep the lot and buy a Rembrandt to use as a dishcloth.

If you express discontent about it, you’re asked ‘do you have an ISA, because THAT’S tax avoidance’? I suppose it is. If you buy an apple rather than spending that money on a house, you’re sneakily avoiding stamp duty. Who are you to complain about Google?

And, as they insist, none of these people named have done anything illegal. That may be because the characters using accountants in Panama were rich to start with, so they could afford to employ an army of lawyers and accountants to make sure their avoidance was legal. If burglars had those resources, they’d inform a specialist firm about a house they were planning to rob so it could be registered in an archipelago off Alaska where it’s legal to walk off with someone’s telly and do a dump on their carpet.

But the saddest part of this story, as many Conservatives have suggested, is that if we’re going to be such sticklers over people in public life and where they put their £10m, we risk putting decent tax avoiders off from offering their services to the state. For example, William Hague said if Winston Churchill had to be open about his accounts, he wouldn’t have stayed in politics.

That’s possible – although it may be that he’d have stayed in politics and paid his tax. Or he might have said: “I was planning to warn about the perils of Hitler, then if necessary become Prime Minister and oppose the attempted fascist domination of Europe. But if I’m expected to pay the legal tax rate, I don’t see why I should bother.”

This only shows the slippery slope we go down if we insist our politicians stick to the same rules as everyone else.

If we expect them not to drive at 120 mph the wrong way down a motorway, or set fire to public buildings or sacrifice llamas in the woods in Satanic rituals, we’ll simply deter the high quality individuals we need.

Britain lecturing the world on morality? That’s rich

Kevin McKenna in The Guardian

To the world’s despots and gangsters: if you think you’re bad, just look at what’s going on in Cool Britannia

 

Panama City has been the centre of the news because of revelations about the law firm Mossack Fonseca. But maybe we should be looking a little closer to home. Photograph: Joe Raedle/Getty




As ever, the King James version adds a literary edge to one of the most dramatic tales of the Old Testament. In Genesis 18:24, Abraham is appealing to God’s good nature as he attempts to save the wicked cities of Sodom and Gomorrah from the Almighty’s ultimate sanction. “Peradventure there be fifty righteous within the city: wilt thou also destroy and not spare the place for the fifty righteous that are therein,” the desperate patriarch solicits his maker. In the end, Abraham’s pleas come to naught as he couldn’t even name one good man, let alone 50, and so the cities are duly consumed by fire and brimstone.

Now, I’m not suggesting for a minute that Panama, the Las Vegas of the rich and infamous, is about to meet a fiery denouement just yet. After all, God’s ire seems to have softened since those biblical early days when He favoured a no-nonsense approach. And, as the leaked Mossack and Fonseca documents show, if Panama was to be turned to dust where would that leave the UK? As the Times declared last week: “No other country in the world maintains and indulges a network of offshore tax havens as brazen in their defence of unwarranted secrecy as Britain’s overseas territories.”

Indeed, I’m sure some enterprising management consultancy could establish a lucrative wee venture engaging with the world’s top gangsters and despots in the following blameless and entirely legal way. I’d suggest they produce a glossy brochure showing how, no matter what crimes against humanity they are ever accused of, not to get too strung up about it all. The brochure would be entitled If you think you’re bad, just look at what’s going on in Cool Britannia. A series of seven seminars and modules would also be offered to tyrants and vagabonds everywhere providing them with something money just can’t buy: solace, geopolitical schadenfreude and a good night’s sleep.

1. Hypocrisy

The UK has recently instigated a programme of benefit cuts, advocating that its poorest citizens all tighten their belts to see them through the choppy waters of economic recession. They are being told that everyone is all in it together and that the government is going to make work pay. There will be a clampdown on workshy benefit cheats. For an extra premium we will provide you with a list of all the companies using places such as Panama to avoid tax and show you how the world’s poorest countries are deprived of £240bn of income by similar practices.

2. Cynicism

Are you sick of western democracies lecturing you about ethnic cleansing and enriching yourselves while your people starve? We’ll show you how every spare scrap of land in London is being sold off to unnamed persons to build blocks of £5m luxury flats that will never be occupied. Attached, please see the DVD of the view from the Docklands train. This is called economic cleansing and is the process of removing undesirable taxpayers to make room for the proceeds of global money-laundering. And destroying the concept of social and affordable housing.

3. Graft

Political and civic leaders all preach the values of financial rectitude and putting away money for a decent pension. But every Saturday and Sunday (and all other nights when there is football on the telly) they permit dozens of unregulated online gambling outlets to prey on working men as they watch their favourite teams in action. “Please gamble responsibly,” they say, and then encourage people, when they are at their most vulnerable, to bet on every possible outcome, every hour of the day on every electrical device. Remember this when they take a dim view of Igor and Sergei, your new business partners.

4. Cheating

If you ever find yourself resentful at another chinless wonder from the British Embassy lecturing you on human rights abuses this one’s for you. In Scotland, almost half the land is owned by 500 individuals. This came about after illegal and often violent land-grabs 300-400 years ago that have been protected by dubious legislation ever since. After 17 years of so-called “left-wing” governments their land reform bill is a toothless joke. Scotland is a rich country with great export goods, good universities and stacks of churches. Tonight, though, 250,000 of its children will go without food and 5,000 don’t know where they’ll be sleeping.

5. Warmongering

Do you ever get hurt when Britain and its allies routinely describe you as being part of the axis of evil? Doesn’t it make you sick when they insist only they can be trusted with nuclear warheads? Perhaps you ought to know that this moral arbiter of what is good for the rest of the world routinely has sold £5.6bn worth of military hardware to Saudi Arabia, aka The Headless State, since the Tories came to power. During that time, according to the Campaign Against Arms Trade, the UK has sold weapons to 24 of the 27 states included on its own list of “countries of humanitarian concern”.

6. Greed

Don’t get too upset when the UK tries to excoriate you for your apparent lack of democracy. Instead, just tell them that you won’t take any lessons in this from a state that pimps its own parliament as a place to purchase influence in the laws of the land and where MPs can be bought. All it takes is a tidy six-figure cheque to Tory central office and you’re in. In fact, for the price of a few lunches at Claridge’s and a two grand a month retainer you can get any number of Tories to ensure no one looks too closely at your new bespoke torture chambers. Everything has a price, and that includes parliament.

7. Indifference

The next time you’re in London to collect your latest batch of Eurofighters take a note of every time you hear British people congratulating themselves on being the most enlightened and civilised country in the known universe. Then ask yourself why they all look the other way when this is all happening. Their passivity can be bought cheaply with a few royal babies; some gold medals at the next Olympic Games and arranging another one of their wars against another third world country.

David Cameron’s gift to the world: trickle-down tax-dodging

Marina Hyde in The Guardian

An intriguing approach to damage limitation by Panama prat David Cameron, particularly considering the prime minister’s only real life job ever was as a PR. The prime minister appears to have been the last person to realise what everyone else in Westminster could see on Monday. Namely, that he’d be sitting down for an awkward tell-all – or at least a tell-some – by Thursday.

My absolute favourite tale from Cameron’s era as press chief for the culturocidal Carlton Television comes courtesy of the Guardian’s then media correspondent, who rang him up on a story. Like all mediocre PRs, a large part of his strategy was ignoring calls, but having accidentally answered this one he was cornered – and consequently pretended to be his own cleaner. “I can’t prove it was him,” the journalist reflected later, “but it certainly sounded a lot like him.” Well, he does have that central casting cleaner’s voice, so perhaps we ought to leave the case file open. Even so, for the journalists who recall the barefaced whoppers Cameron was able to tell them back in those days, this week has not been an occasion to break out the smelling salts.

“I’ve never tried to be anything I’m not,” Cameron claimed to Robert Peston in his belated confession. What about a cleaner? Or a football fan? Evidently the PM judged it the wrong moment to bring up either impersonations of the help, or Aston Villa. Or, indeed, West Ham. Still, at some point, Fortune was always going to collect on the deal Cameron foolishly made when he called the comedian Jimmy Carr’s (also legal) tax arrangements “morally wrong”. Showbiz now joins football on the list of things upon which he ought never to comment again.

Explaining to Peston that “my dad was a man I love and miss every day”, Cameron admitted that he and his wife had in fact invested in Ian Cameron’s offshore firm Blairmore in 1997, then sold their stake in 2010 for “something like £30,000”. That Cameron’s shifty cover-up has been more damaging than his non-crime is almost too insultingly obvious to state. He will not be assisted by the subconscious dismissiveness in that styling – “something like £30,000”. There is a fine line between fastidious precision and sounding like something north of the average British salary is rather forgettable, and the PM fell on the wrong side of it.

Even so, despite the obvious temptations, it would be a destructive mistake for Cameron’s enemies to get too tribal about these things. For all that this story appears currently to concern the Conservatives, there is something rather more Labourish – New Labourish, particularly – to it. The history of British political scandal dictates that it is traditionally sex that gets the Tories in trouble, and money that lands Labour in hot water.

That the Camerons’ investment in Blairmore lasted from 1997 to 2010 – the precise era of New Labour government – feels like a bit of a signpost. Indeed, for a story featuring something called Blairmore, it is surprising that it is Blair-less. For my money – something like £30, for this bet – the saga this most closely resembles is “Cheriegate”. Back at the very end of 2002, you may remember, Cherie Blair unwittingly used a conman (the gentleman caller of her special-adviser-cum-aromatherapist) to assist her in the purchase of two £250,000 Bristol flats.

Just as it has with Cameron, it took Mrs Blair several days to realise she was going to have to tell the truth, but eventually she too was making an emotional speech explaining that she had only been trying to protect her family “particularly my son in his first term at university [sob] living away from home”. A cri de coeur that certainly put in perspective the worries of other mothers who were at that time sending their 18-year-olds off to her husband’s war in Afghanistan. Toughest game in the world, the university game.

That said, Cameron’s emotional citation of his father, though obviously relevant, does rather recall Gordon Brown when on a sticky wicket. A defensive mention of his dad was Brown’s poker tell, and one almost as inscrutable as Homer Simpson’s habit of dancing round the table shrieking in delight at having been dealt four jacks. Mr Brown was never delighted when he brought up the scrupulous honesty of his Presbyterian minister father, but felt the urgent need in order to bolster the fib he was about to tell. An absurd denial that he’d never contemplated sacking Alistair Darling, for instance, came with the giveaway mention that his father had taught him “always to be honest”.

“He’s a prime minister,” skills minister Nick Boles conceded of Cameron on Friday morning, “but he’s also a human being and he’s a son.” I think we can ignore Mr Boles on the father-son dynamic. His last public reference to it was when he accused the grieving father of a Tory activist who had killed himself of trying to “hound” the party chairman out of a job.

Even so, Labour should consider the bigger picture. There are – how to put this delicately? – certain big political names of the relatively recent era that have yet to feature in the tale of tax avoidance, but on whom you’d be unwise to bet against emerging in some future story, some later data leak. Then again, perhaps these persons unnamed have opened their umbrella firms even more carefully, and we shall never know on the record. But we shall know it in our hearts, with that epistemology made fashionable by Tony Blair. “I only know what I believe,” he once intoned. Don’t we all, Mr Blair. Don’t we all.

The gravest danger of casting the tax debate as some tribal battle between the same old foes is to us – the little people who pay taxes, as Leona Helmsley once deathlessly observed. A tit-for-tat between parties does society in which we all have a stake no favours. Down that path, the path where ordinary people conclude that politicians and companies are all in it together, lies a corrupted society like Greece, where top-tier tax dodging eventually trickled down to dentists and doctors and beyond.

The idea that Britain – where people traditionally paid tax relatively willingly – could ever end up anything like this was unthinkable only a few years ago. It is now rather more thinkable, with the accretion of endless stories about Google, Amazon, the Panama Papers names … Never mind the details. Over time, overall impressions are taken. In the end, ordinary people will only know what they believe, and the fear for society is that they will begin to act accordingly.

Tax havens don’t need to be reformed. They should be outlawed

Richard Brook in The Guardian


The Panama Papers are not really about a central American state. They are a glimpse through a Panamanian keyhole of an orgy of tax evasion, money laundering and kleptocracy – amid the legitimate financial planning – hosted by the world’s tax havens. Seven years after world leaders came together at a post-financial crisis G20 summit in London and committed to end tax haven abuse, it is clear from these papers that no such end is in sight.

The good intentions have translated into a blizzard of international agreements on sharing information, amnesties through which tax evaders can come clean, and prosecution drives of variable quality to nail the cheats. All are demonstrably inadequate. Information will not, and cannot, be exchanged to any meaningful extent by countries and territories whose “offer” is that they don’t ask for it or will turn a blind eye to being deceived.

Amnesties teach rich tax evaders that, even if they are caught, they will get off far more lightly than somebody overclaiming a few pounds in social security benefits. Criminal pursuit of offenders, certainly in the UK, is little more than a joke. One prosecution from 1,000 tax evaders using HSBC’s Swiss accounts is the now infamously poor punchline.

Here, the Panama Papers lay bare another national disgrace: Britain’s longstanding role at the centre of the offshore web. More than half of the 200,000 secret companies set up by the Panama lawyers Mossack Fonseca were registered in the British Virgin Islands, where details of company ownership don’t have to be filed with the authorities, never mind be made public.

While this week’s leak is on an unprecedented scale, it exposes a historic as well as current failing. As the British empire faded away after the second world war and territories such as the British Virgin Islands drifted into the constitutional limbo of semi-independence, they were encouraged to develop financial services as a way of sustaining precarious economies. If this meant a few of the world’s wealthier people paid a little less tax, thought successive British governments, it was a price worth paying for not having to support the territories.

Late 20th-century financial liberalisation turned this already complacent calculation into something more lethal. With fortunes sloshing freely across borders, tax havens became voracious parasites on the world economy, most seriously sucking the life out of some of its poorer parts. All the great national robbers of recent decades, such as Nigeria’s Sani Abacha, have used tax haven companies, including British Virgin Islands ones, as the getaway cars.

Despite this long trail of evidence, leading economies refuse to address the problem at its source. The UK has great leverage over its 17 overseas territories and crown dependencies, all of which depend on the mother country for security and happily trade off its legal system. At a stroke our government could shut down the British Virgin Islands corporate system, for example. But under influence from a banking system that thrives on the legal benefits of offshore centres such as the British Virgin Islands and the Cayman Islands, it takes a more relaxed view. Asked recently about whether Britain’s overseas territories should publish registers of beneficial owners of their companies, foreign office minister James Duddridge replied that these were a “direction, rather than an ultimate destination”. The Panama Papers should expose this indifference for the great scandal that it is.

Without leaks like this week’s, nothing would be publicly known about the tax haven companies now exposed. And next to nothing would be known by the authorities in the countries affected. Yet, alongside dozens of other tax havens, the British Virgin Islands can claim to be on the Organisation of Economic Cooperation and Development’s “white list” of approved jurisdictions, having met conditions imposed for exchanging information. That’s right: a major centre of international financial crime, home to the shell companies of Vladimir Putin’s associates and any number of other money launderers and sanctions-busters, is endorsed by the rich nations’ club.

With around $1tn a year still flowing out of developing countries to tax havens, it is clear that coaxing these territories into increased transparency can achieve only marginal gains. The recent series of leaks poses a more potent threat: anybody contemplating hiding income offshore must now factor in the risk that many years later the details could make their way from an office such as Mossack Fonseca’s into the wider world. Far better, even the greediest might think, simply to pay the tax and get on with life.

But for others, especially those looting serious money, the offshore attractions will remain. There will be further added layers of secrecy: phoney foundations and fake beneficial owners with no names mentioned even in internal emails. A small proportion of scams will be exposed in the press and documentaries featuring telegenic palm trees and yachts will continue to hit our TV screens. But the tax havens will keep their place in the world.

To tackle the cancer of corruption at the heart of the global financial system, tax havens need not just to reform but to end. Companies, trusts and other structures constituted in this shadow world must be refused access to the real one, so they can no longer steal money and wash it back in. No bank accounts, no property ownership, no access to legal systems. The anti-corruption summit being hosted by David Cameron in May is an opportunity to start the international team effort that this would require. The world has been entertained by tax havens long enough.

Crime, terrorism and tax evasion: why banks are waging war on cash

Paul Mason in The Guardian

Governments would love to see the end of banknotes. But what would a cashless society mean for freedom?

 

Will contactless payment help usher out cash? Photograph: Bloomberg/Bloomberg via Getty Images



I can remember the moment I realised the era of cash could soon be over.

It was Australia Day on Bondi Beach in 2014. In a busy liquor store, a man wearing only swimming shorts, carrying only a mobile phone and a plastic card, was delaying other people’s transactions while he moved 50 Australian dollars into his current account on his phone so that he could buy beer. The 30-odd youngsters in the queue behind him barely murmured; they’d all been in the same predicament. I doubt there was a banknote or coin between them.

The possibility of a cashless society has come at us with a rush: contactless payment is so new that the little ping the machine makes can still feel magical. But in some shops, especially those that cater for the young, a customer reaching for a banknote already produces an automatic frown.

Among central bankers, that frown has become a scowl. There is a “war on cash” in the offing – but it has nothing to do with boosting our ease of payment or saving trees.

Consider the central banks’ anti-crisis measures so far. The first was to slash interest rates close to zero. Then, since you can’t slash them below zero, the banks turned to printing money to stimulate demand. But with global growth depressed, and a massive overhanging debt, quantitative easing (QE) is running out of steam.

Enter the era of negative interest rates: thanks to the effect of QE, tens of billions held in government bonds already yield interest rates that are effectively below zero. Now, central banks such as Japan and Sweden have begun to impose negative official interest rates.

The effect, for banks or long-term savers, is that by putting your money in a safe place – such as the central bank or a government bond – you automatically lose some of it.

Not surprisingly, these measures have led to the growing popularity of cash for people with any substantial savings. Bank of England research shows demand for cash has grown faster than GDP in many countries. So the central banks face a further challenge: how to impose negative interest rates on cash itself.

Technologically, you can’t. If people hold their savings as physical currency, it keeps its value – and in a period of deflation the spending power of hoarded cash increases, even as share prices and the value of bank deposits fall. Cash, in a situation like this, is king.

But the banks are ahead of us. Last September, the Bank of England’s chief economist, Andy Haldane, openly pondered ways of imposing negative interest rates on cash – ie shrinking its value automatically. You could invalidate random banknotes, using their serial numbers. There are £63bn worth of notes in circulation in the UK: if you wanted to lop 1% off that, you could simply cancel half of all fivers without warning. A second solution would be to establish an exchange rate between paper money and the digital money in our bank accounts. A fiver deposited at the bank might buy you a £4.95 credit in your account.

More radical still would be to outlaw cash. In Norway, two major banks no longer issue cash from branch offices. Last month, the biggest bank, DNB, publicly called for the government to outlaw cash.

Why would a central bank want to eliminate cash? For the same reason as you want to flatten interest rates to zero: to force people to spend or invest their money in the risky activities that revive growth, rather than hoarding it in the safest place.

Calls for the eradication of cash have been bolstered by evidence that high-value notes play a major role in crime, terrorism and tax evasion.

In a study for the Harvard Business School last week, former bank boss Peter Sands called for global elimination of the high-value note. Britain’s “monkey” – the £50 – is low-value compared with its foreign-currency equivalents, and constitutes a small proportion of the cash in circulation. By contrast, Japan’s 10,000-yen note (worth roughly £60) makes up a startling 92% of all cash in circulation; the Swiss 1,000-franc note (worth around £700) likewise. Sands wants an end to these notes plus the $100 bill, and the €500 note – known in underworld circles as the “Bin Laden”.

The advantages of a digital-only payment system to the user are clear: you can emerge from the surf in only your bathing shorts and proceed to buy beer, food, or even a small car, providing your balance is positive. The advantages to banks are also clear. Not only can all transactions be charged a fee, but bank runs are eliminated. There can be no repeat of the queues outside Northern Rock, nor of the Greek fiasco last summer, because there will be no ATMs, only a computer spreadsheet moving digital money around. The advantages to governments are also clear: all transactions can be taxed. Capital controls are implicit within the system.

But there are drawbacks, even for governments that would like to take absolute control of money transactions. First, resilience. If a cyber-attack or computer malfunction took down a digital-only payment system, there would be no cash reserves in households and businesses to fall back on. The second is more fundamental and concerns freedom. In most countries, the ability to take your cash out of the bank and to spend it anonymously is associated with many pleasurable activities – not all of which are illegal but which exist on the margins of society. How tens of thousands of club-goers would pay for their drugs each Saturday night is a non-trivial issue.

Nevertheless, the arrival of negative interest rates for banks, together with new rules allowing governments to bail-in – ie confiscate – deposits above a protected minimum, are certain to increase savers’ awareness of the value of cash, and will prompt calls in earnest for its abolition.

If it happens, it would be the ultimate demonstration of the power of finance over people. As for resistance? Go ahead and try. It may be the Queen’s head on a £50 note but the “promise to pay” is made above the signature of a Bank of England bureaucrat.

Forget austerity – what we need is a stronger state and more taxation

The income tax system needs reshaping. This is not easy. But nor is reducing the state to its smallest level for 80 years

• 
• • Will Hutton
  • The Observer, Sunday 7 December 2014

The March of the Unemployed from the Thames Embankment to County Hall, Westminster, during the Great Depression. Photograph: Hulton-Deutsch Collection/Corbis

If the Conservative party forms the next government, by 2020 the state will probably be the smallest it has been – in relation to GDP – for 80 years. So declared the Office for Budget Responsibility last Wednesday, in the wake of the autumn statement. By 2020, spending per head of population will have fallen by around a third in 10 years. In some areas – in our cities and our criminal justice system – the reductions will be even more draconian. This is the most dramatic change in state capability that any British government has ever engineered.

The chancellor may complain about the “hyperbolic” tone of some BBC reporting. But surely only in a one-party state would this dramatic plan not be discussed in appropriately dramatic terms. Britain is to become the site of a massive experiment in economic and social libertarianism whose authors have never fessed up to the sheer audacity and scale of what they are doing. They have just dumbly insisted there is no alternative. The autumn statement was the moment the implications became clear.

A financial crisis has been allowed to morph into a crisis of public provision because the government of the day will not lift a finger to compensate for the haemorrhaging of the UK tax base. What the state does is not the subject of a collective decision with concerned weighing of options. Instead, it’s an afterthought, with the greater priorities a reduction in public borrowing and freezing or lowering tax rates.

All the state can spend is what is left after those two greater priorities are met, and if it has to shrink to pre-modern levels then so be it. The market will provide: charity will alleviate suffering; people will get by; the roof will not fall in. Lifting taxation can never be considered to close the gap. It is, it is alleged, both economically self-defeating and immoral.

A cool £54bn has gone missing since 2010. Then the government projected that in 2014/15 its total tax revenues would be £700bn. In fact, they will be £646bn, according to the OBR. Public spending, on the other hand, has behaved almost exactly as forecast. In 2010, the government projected that its spending would be £738bn in this financial year. The Treasury is to be congratulated on its capacities as national book-keeper in chief. The actual figure is £737bn, an accuracy I doubt many private companies could reproduce – or even individual readers of the Observer. It is not runaway public spending that is causing borrowing to stay stubbornly high, thus triggering the extreme shrinkage of the state: it is the hollowing out of the tax base.

There are three principal causes. The first is that the structure of the economic recovery is delivering a reduced tax yield. There are too many low-paying jobs and pay on average is stagnating, so that aggregate income tax revenues are growing much less rapidly than in previous recoveries. We are drinking and smoking less, so there is less revenue from alcohol and tobacco duties. Altogether this accounts for around a third of the shortfall.

Another third is a result of the chancellor wanting to show his tax-cutting credentials as a true Thatcherite man: he has cut corporate tax rates, frozen the business rate, not adjusted council tax bands upwards, not increased petrol duties, lowered the top rate of tax and increased personal allowances. The last element is down to our living with an epidemic of tax avoidance and evasion, as the last G20 summit recognised – and which even Osborne says he deplores. Too many companies and rich individuals are gaming the system.

Put all this together and Britain has lost that £54bn. But matters are made worse by the interaction of Britain’s highly centralised Treasury and a chancellor with Osborne’s instincts. Giles Wilkes, former adviser to Vince Cable, and Stian Westlake, research director at Nesta, write in an important paper, The End of the Treasury, that the Treasury inverts the way that spending and taxing decisions should be made. It starts with a target for borrowing, not differentiating great capital projects such as London’s Crossrail from spending on the NHS. Then it projects tax revenues assuming no changes, and sets aside money for fixed obligations, such as pensions.

Finally, departments fight over the left-overs on a year by year basis, with the Treasury policing spending with a ferocious rigidity. The benefit is that it can control spending to the last billion. The cost is that there is never a weighing up of the benefits of raising taxes against a particular use for public spending, nor any strategic long-term programme of investment.

This is bad enough in ordinary times, but when a chancellor refuses to consider raising taxes as the tax base collapses it is a recipe for disaster. It results in a minimal state, with implications for prisons, schools, courts, policing, legal aid, care, security and defence that are profound. Some of this could be avoided if, as both Labour and the LibDems propose, capital investment was not lumped in with current spending so that virtuous borrowing could be separated out. The country may also get lucky: wages stop stagnating and income tax receipts rise.

But the bigger truth is that if Britain wants the scale of public activity congruent with a civilised society, it has to be paid for. The reaction will be hysterical, but lifting taxes by 3% of GDP to 38.5% to find the missing £54bn will still leave Britain below the crucial 40% benchmark, thus undertaxed by comparison with most advanced countries. The whole system of property taxation needs overhauling. The VAT base can be broadened. Environmental taxes can be extended. Osborne’s proposals to ensure companies pay tax on UK revenues need to be tougher and introduced earlier. The income tax system needs reshaping.

None of this is easy. But neither is reducing the state to its smallest level for 80 years. Reducing spending on schools further is surely short changing our children. How much smaller should the army, navy and air force become? Is the welfare system to return to a system of discretionary poor relief? Do we share the libertarian view that the state is worthless – and there is no co-dependency between public and private? What role do we want the state to have in our civilisation? The right would have it that none of these questions can be asked because all involve an increase in taxation: our only future is a 1930s scale state.

There is a different future, and our politicians of the centre and left have to argue for it, but they must accept it has to be paid for. This has become an existential divide. Politics and political argument have never mattered more.