Forget Bermuda, Britain's tax havens are much closer to home

It's easy to point a finger at Amazon and co, but UK-based trusts make it easier than ever for the rich not to pay their share

• 
• • Polly Toynbee
  • The Guardian, Thursday 15 November 2012 21.00 GMT

There are many UK companies that offer trusts 'guaranteed to protect almost all your wealth from inheritance tax'. Photograph: Image Source/Alamy

The hottest ticket this week was a ringside seat for the public accounts committee's roasting of tax-avoiding Starbucks, Google and Amazon. Committee chair Margaret Hodge in full flight gave them a magnificent tongue-lashing, with Tories hot on her heels too, pouring derision on "don't be evil" companies' pretence to make next to no profit as they siphon cash into tax havens. Even the comptroller and auditor general lost his temperand called their evidence "insulting".

These are only opening salvos, as the Germans and French take aim too against companies pretending their profits arise in Bermuda or Luxemburg. John Lewis's managing director is calling on the Treasury to demand tax is paid in the country where profits are made:Amazon made £3.3bn in sales but paid zero UK corporation tax on any of the profits of that income. "They will out-invest and ultimately out-trade us," tax-paying John Lewis protests, unable to compete fairly with tax-shirkers. This should be easy to fix. Vince Cable says he's angry – but HMRC could refuse to accept these companies' accounts.

Everyone can point a shocked finger at foreign giants who bamboozle or intimidate our tax collectors. But the culture of avoidance runs deep. Labour tiptoed round the edge of the tax avoidance industry, chased off by City blusterers who called tougher tax collection a Labour stealth tax. But since the crash, the collapse in tax revenues has created soaring national debt, so the need for the Treasury to collect every penny owed has become more pressing. The culture of getting away with what you can has to give way to a popular understanding that one man's tax dodge is his own community's lost children's centres, libraries and swimming pools. So where does it all begin?

In a sedate Sussex hotel, St James's Place Wealth Management invited a flock of retired people of comfortable means to one of their genteel sales pitches on how to avoid tax. Observing unannounced, I listened to them selling their Rolls Royce anti-tax vehicles and investment funds: one fund was so stellar that it grew in 30 years from £30,000 to £2.7m – and how the room gasped in admiration. Yes, yes, we were all well warned that investments can go down as well as up, but the upside of that £2.7m looked more compelling than any risk. But the real seller for these elderly people concerned ways to avoid "uninvited guests at the sharing out of your estate". Those "uninvited guests" are the rest of the nation's taxpayers.

The atmosphere was impish and jocular, with the taxman as pantomime villain. Shocking stories were told of what befalls the estates of those without cunning advisers. Charles Clore lived abroad to avoid tax, but because he foolishly wanted to be buried "back home", the taxman deemed he was not really resident abroad at all and his whole estate was subject to inheritance tax. Gasps of shock. On screen, up came Prince Philip's whimsical remark that "All money nowadays seems to be produced with a natural homing instinct for the Treasury" – though in his case money makes the reverse journey from the Treasury to his trouser pocket. "Taking the worry out of wealth," was the theme, as one presenter promised: "We can protect your money from the dangers of tax," explaining how to offshore money.

But the big sell is trusts, special ones devised for this company's clients, guaranteed to protect almost all your wealth from inheritance tax. They are right, it can be done easily. Put all moveables and all cash and investments into a discretionary trust, and it passes to your heirs without tax as soon as you die, not even waiting for probate. It counts as a gift so the beneficiaries need pay no tax either. Called a "discretionary trust", as technically St James's are the legal trustees, the discretion in fact remains in all but name with you: the company will do whatever you ask, so you still control the fund and you can still take money from it. But for reasons that defy basic tax fairness, it avoids all inheritance tax. Why?

Even worse, hard-pressed local authorities are denuded by these trusts too. As St James's advisers eagerly pointed out, if you hide away your assets in a trust, it can't be counted when calculating how much you should contribute to your care if you need to go into a residential home. He warned that could be £1,300 a week in fees – more gasps – so why let your council take your money when you can salt it away safely in a trust? Let poorer taxpayers pick up the bill instead.

Richard Murphy, tax campaigner and adviser to the public accounts committee and others, says no one knows how much money passes through these trusts. They are opaque, unregistered and the taxman neither knows if they exist nor what's in them. Far more tax is probably avoided this way than the mere £3bn collected in inheritance tax: only 3.5% of estates pay it – and they may not be the richest. Why any Labour chancellor – or Tory for that matter – lets this dodge persist is a mystery. Inheritance is a neuralgic political topic, ever since the issue panicked Gordon Brown into ducking an election in 2007. But since so few estates pay it, it's hard to see why the 96.5% of ordinary taxpayers who never leave enough to get above the £650,000 couples' inheritance tax allowance would not support ending this loophole for the rich.

Meanwhile, the public accounts committee is summoning back Amazon after this week's "deliberately evasive" display of "outrageous" ignorance by one of their executives: he didn't know who owns their Luxembourg-based holding company that pays a fraction of the UK's tax rate. The return match is not to be missed. Margaret Hodge is calling for complete transparency to stop companies claiming "commercial confidentiality" to hide their accounts. She wants aggressive avoiders to be named and shamed and denied public contracts, and she suggests the public boycott tax avoiders.

On 8 December UK Uncut is protesting against Starbucks, setting up creches, libraries and women's refuges in the coffee shops, as payback for services that might stay open if Starbucks paid fair tax. Is it time the committee looked at how the likes of PricewaterhouseCoopers, KPMG, Accenture and McKinsey devise ever more elaborate tax dodges for their clients, yet with the other hand seize ever fatter contracts from the state they help strip bare of revenues?

Politicians are Dire!

Western politicians are dire, but we mustn't despise government

Our leaderships, in thrall to big business, are failing in so many places all at the same time. But we can't give up on them

• 
• • Jeffrey Sachs
  • guardian.co.uk, Friday 16 December 2011 20.46 GMT
  • larger | smaller

David Cameron was quite right to reject an economic treaty wasn't even written yet, much less scrutinised. Photograph: Yves Herman/Reuters

The year 2011 will be remembered as the year of failed summits. Governments proved themselves time and again to be failures at addressing the growing crises engulfing the world, whether the eurozone debacle, climate change, or budget politics in the US and Europe. Next year is likely to be worse, as electoral politics will further impede decision-making in the US, France and several other countries.

Why should governance be so poor in so many places at the same time? There are several factors at play. Globalisation has undermined the manufacturing base of most of the high-income economies, costing millions of jobs and leading to stagnant or falling living standards for a large part of the workforce, especially those with basic skills and modest education attainment. The US has lost around 8-9 million manufacturing jobs since the peak in that sector in 1979, just as China was joining the world economy. Meanwhile, the soaring economies of Asia have pushed up world food and oil prices, further squeezing real incomes in Europe and the US.

Yet in the face of high unemployment, growing inequality and looming budget deficits, most governments are paralysed, in thrall to powerful interests. Wall Street, the City of London, the Frankfurt banks and other corporate lobbies hold politics in their grip, and block effective change. Top income tax rates are kept low; banks remain undercapitalised and under-regulated; and urgently needed public investments for education, job skills and upgraded infrastructure are being slashed in response to budgetary pressures.

The politicians are also in way over their heads. They are typically negotiators and public relations specialists, not experts on the policies needed to resolve the world economy's crises. The special interest groups write the scripts, but these scripts prove impossible to stage. Every European summit in the past two years has not only failed politically, but also technically. The policy prescriptions put forward by Germany's Chancellor Merkel are poorly prepared and designed, and impossible to implement. The euro is being killed not only by politics but also by incompetence.

The actual process of governing has descended to soundbites. In the US the Obama administration has failed to produce a major policy document on any area of key policy concern: the budget, taxation, energy, climate, financial regulation, healthcare or poverty. Policies and legislation are decided in the backrooms dominated by lobbyists and negotiators. Politics is by horse-trading among interest groups – not by reason, expertise and democratic deliberation.

The European Union processes are now equally bizarre. The entire union of 27 countries awaits the word of one member, Germany, whose policy logic in turn reflects a mix of post-traumatic stress, coalition politics, powerful yet crippled banks, and amateur politicians. The European commission seems to play little or no role. Major new treaties of constitutional importance are launched by Germany days before a summit, with no reasoned discussion or professional analysis. David Cameron was absolutely right not to be cowed into signing up to an economic treaty that isn't even written yet, much less professionally scrutinised.

A few countries, notably the northern European social democracies, are keeping their heads above water, at least for now. They are stable because income inequality and poverty are kept low by active government policies. Transfer payments to the poor and the social safety net are robust. Tax collections are ample and budgets are in balance or surplus. Even these countries flirted with financial deregulation in the 1990s, paid a heavy price and then got their banking sectors back under control. Tough financial regulation has served them well during the past decade.

So what can we learn from the few success stories? First, societies function properly only when they are judged by their citizens to be reasonably fair. Northern Europe has built its policies on a framework of equality and inclusion. In the US, the idea of fairness has been almost absent from political vocabulary for three decades. The Occupy Wall Street movement, thankfully, has brought it back to life. Most of Europe is somewhere between the fairness of northern Europe's social democracies and the glaring inequities of the US. Yet in much of western Europe there has been a clear shift away from solidarity, towards harsher policies that shield the rich from their responsibilities to the rest of society.

Second, economic success requires increased public investments in education, infrastructure, energy, job skills and more. Simplistic budget cutting will destroy governments rather than fix them. Higher taxes on top incomes and wealth must be part of any sound fiscal strategy. Yet till today, Washington politicians of both parties have been recklessly and thoughtlessly squandering American prosperity by prioritising tax breaks for the rich.

Third, more expert policymaking is needed. The eurozone crisis, for example, requires urgent attention to Europe's decapitalised banks. Yet German politicians, driven by ideology and local politics, have been fixated on fiscal problems while allowing the banking crisis to fester and worsen. The US crisis is fundamentally about the under-taxation of the rich, yet the policy focus remains on budget cutting. In both Europe and the US, political debates consistently miss the mark by short-changing serious diagnostics and policy design.

Our temptation in the face of rampant government failures is to despise government, and even to cheer its demise. How can we avoid that feeling when we watch politicians preening on the TV screen? Yet we desperately need to make the US and European governments work again – not for the politicians' sake, but for ours. Unless we restore skill, fairness, and vibrancy to our democratic institutions, the unrest on the streets is bound to grow.

• © 2011 Guardian News and Media Limited or its affiliated companies. All rights reserved.

The relentless pursuit of productivity is socially divisive, environmentally destructive and doesn't make us any happier

Happiness: the price of economic growth

• 
• • Andrew Simms
  • guardian.co.uk, Monday 1 August 2011 21.00 BST
  • larger | smaller

Family and friends ranked highest in a survey of what mattered most to people. Photograph: Alamy
Last week, on the same day that we learned economic growth in the UK was running at a miserly 0.2%, the Office for National Statistics launched a new programme of work on measuring human well-being. The latter was the result of a month-long survey in which the public were asked what mattered to them. To barely disguised yawns, the answers that came back were, "family, friends, health, financial security, equality and fairness in determining well-being", according to national statistician Jill Matheson. So we were caught on one hand between a low-grade, generalised fear that people weren't buying enough stuff to keep the economy going, and being told on the other hand something we already knew deep down: that a better quality of life stems not from consuming more, but from a range of mostly immaterial things. Crucially, in a society like the UK, enjoyment of these does not correlate in any positive, straightforward manner with economic growth. On the contrary, some policies used to promote growth can directly undermine a range of the factors that do contribute to well-being, such as the time we need to spend with family, health, equality and fairness. Depending on how it is pursued, economic growth can be jobless, socially divisive and environmentally destructive. It can, in other words, be "uneconomic growth". In a quite extraordinary intervention, as part of the government's desire to cut spending on public services, Oliver Letwin, the coalition's policy minister, recently suggested that "fear" of losing your job should be used to increase the productivity of workers. This approach appears to be wrong on so many levels that I first thought it had to be a spoof. It will do nothing for growth; it chronically misunderstands how to get the best out of people; it contradicts the prime minister's own public conversion to the importance of well-being at work and, perhaps most importantly, it misunderstands real productivity. In professions like health and education, if you drive out costs (ie people) you get a worse service. Quality of care and nurturing depends to a huge degree on attentive human contact in a convivial context. Subject people to old-fashioned Taylorist production-line management, coupled with the intimidation of a threatened job loss, and nobody wins. It is wrong, also, because buried in this conundrum, may also be the secret of how, in the long term, we align our livelihoods and lifestyles with the limited planet on which we depend. This is about designing an economy of better, not more. And that suggests fundamentally rethinking what we mean by efficiency and productivity. An economy that is more based on services, and in which we are sharing, repairing, recycling, reusing, learning, collaborating and coproducing services (that's the jargon, at any rate – it just means give and take) is one in which, ultimately, we may have more people doing fewer things in formal paid employment. In that context, we might have more time for "family, friends, health", and all the things that do add to our well-being. The big objection is that growth is needed for jobs, and that these are what we need for financial security. On one level, yes, of course. However, financial security is also a function of equality and fairness, and given other economic problems (such as that many of the jobs created in a push for growth alone do not deliver financial security) as well as environmental constraints, there may be more reliable paths to find security. Inequality both creates insecurity and raises a society's costs in relation to health problems, crime and almost everything else. Redistribution of income and access to employment, therefore, compared with generalised, unequal and resource-hungry growth, can be quicker, less destructive and a more effective way of delivering security. A sensible approach to enhance economic activity in a way that met many needs would be to take Vince Cable's suggestion of another round of quantitative easing, but instead of just spraying a general injection of cash via the banks (who take a cut) into the economy, to channel it into the productive low-carbon economy – a sort of green easing. Sadly, that doesn't look likely to happen any time soon. For now the captain of this ship insists we're all heading south, when there are all kind of indicators telling us that our real needs can only be met by going north.

• guardian.co.uk © Guardian News and Media Limited 2011