Turn up the heat on tax havens

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ONCE again, a vast leak of secret documents has shone a spotlight on the murky world of offshore finance, and the central part played by the UK and its overseas territories in it.

Yet, so far the central defence of the firm at the centre of the Paradise Papers, Appleby, seems to be broadly working: that it has found no evidence that anything illegal has taken place.

While in previous scandals prosecutions have been launched, and prime ministers have toppled around the world, the response to the Paradise Papers, so far, seems more muted. This seems unlikely to be because most people believe that tax avoidance is perfectly reasonable. It is more probably a consequence of the lack of political will to follow through on commitments made during previous crises.

 

BOTH in the UK and globally, the moral argument for paying tax is strong. At a time of significant public hardship in the UK, when nurses and other public-sector workers have not had a real-terms pay increase for seven years, paying taxes to ensure an education for your children and medical treatment when you are sick seems not just an obligation but an investment.

Globally, the situation is even more extreme. Many governments lack the resources to provide basic education and treat preventable diseases, and yet the amount of money being lost from developing countries through capital flight (principally tax avoidance) can exceed the amounts that the rich world is giving in aid — by $68 billion to $19 billion in Africa, for example, according to Global Justice Now calculations published earlier this year.

The super-rich choose to opt out of these questions — and no wonder. As the latest report by the bank Credit Suisse shows, the top one per cent of the world’s population now holds more than 50 per cent of global wealth, up from 42.5 per cent in 2008.

Yet it is hard to argue that even the most cocooned of billionaires does not occasionally have to rely on the emergency services or road network, let alone the armed forces. For corporations, it is even simpler: their workforce and their customers pay tax, and have largely been educated and kept healthy by the state; so why shouldn’t their owners contribute?

Nevertheless, so long as tax avoidance remains legal, people will do it. That is why it is so important to seize the opportunity provided by the Paradise Papers. Previous tax scandals have elicited promises from politicians, but the willingness to implement them has faded with time. Now is the time to build up a new head of steam.

 

POLITICIANS already know what needs to be done. While many steps to crack down on tax havens require international co-operation, there is plenty that the UK can do by itself. After all, the UK is not just another country in the tax debate: it is one of the main enablers of tax avoidance through its network of three Crown dependencies and 14 overseas territories around the world.

The UK Government could shut them down tomorrow with the stroke of a pen by ending the “convention” that they make their own financial laws, and imposing direct rule instead, as the leader of the Liberal Democrats, Vince Cable,demanded last week.

But, short of that, there are two big steps that would turn up the heat on tax havens.

First, a public register of beneficial owners of companies and trusts registered in UK territories. Last week, the Prime Minister refused to commit herself to this.
Second, UK companies should be forced to publish separate figures showing the amount of tax they pay in every country where they operate, including tax havens. This would transform our ability to assess whether transnational companies are using legitimate or illegitimate methods to shift profits into low or zero-tax jurisdictions. The UK Government has had the power to compel publicly listed companies to do this since last year, but it has not used it.

Why, then, is this happening? One of the most significant revelations in the Paradise Papers is the insight that they give into how lobbyists from the International Financial Centres Forum secured “superb penetration of UK policymakers” in the run-up to the 2013 G8 summit in Northern Ireland (News, 23 June 2013), the last big moment for global tax reform. Despite widespread civil-society pressure, radical proposals to bring tax havens into the light were watered down.

The only counterbalance to this sort of lobbying is people-power. Signing petitions, such as the one launched by Tax Justice UK, the new umbrella group for tax-justice campaigning in the UK, is a first step.

But campaigners need to go further. We need an educated, widespread body of people who are able to mobilise in their communities to make MPs across the political spectrum feel the heat. And we need to do it over and over again. Only then will politicians be compelled to take action.

 

Jonathan Stevenson is Communcations manager at Global Justice Now. globaljustice.org.uk

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