A new Oxfam report highlighted this week that because the UK heads up the world’s biggest financial secrecy network, spanning its Crown Dependencies and Overseas Territories and centred on the City of London, it has an unparallelled opportunity to help end the era of tax havens. Luke Gibson, Tax and Inequality Policy Adviser, takes us through how these tax havens are affecting the worlds’ poorest and what the UK can do about it.
We revealed this week that the richest 1% of the UK population – made up entirely of millionaires – has captured more than a quarter of the Â£4 trillion increase in national wealth since 2000, while the poorest continue to struggle to make ends meet. At the same time rich UK individuals avoid Â£5 billion in tax each year.
Our new report, Ending the Era of Tax Havens, published ahead of Wednesday’s Budget, calls for a crackdown on tax havens that enable rich individuals and companies to avoid paying their fair share of tax in the UK and in some of the world’s poorest countries. This is one of the key causes of inequality, both in the UK and across the world.
It’s often easy to think of offshore paradise islands or snowy ‘James Bond’ mountains when someone mentions tax havens. But this perception disguises a shocking reality: the City of London is at the heart of the global tax haven network. The UK, if combined with its Overseas Territories (granted, some if which are island paradises) and Crown Dependencies, would sit at the top of the Tax Justice Network’s Financial Secrecy Index.the City of London is at the heart of the global tax haven network.
Corruption is commonly understood as ‘the abuse of power for private gain’. When individuals and organisations seek to use their power to avoid paying the taxes they owe by utilising preferential facilities such as tax havens, which provide them with undue tax-free rewards, this is a form of corruption. The financial secrecy that many tax havens provide facilitate grand corruption, money laundering, the hiding of political conflicts of interest, the manipulation of markets and the evasion of anti-trust law. World Bank president Jim Yong Kim has labelled corporate tax
dodging explicitly as ‘a form of corruption that hurts the poor’.
The new report shows that when illicit financial flows of money leaving the continent are taken into account, Africa is a net creditor, not a net debtor to the global economy. Yes, you read that right, the African continent is subsidising the rest of us. The structures in the UK’s own Overseas Territories and Crown Dependencies that facilitate tax dodging by individuals from every region of the world on an epic scale are also those which allow corruption to flourish and drive inequality in Africa. It’s estimated, conservatively, that 30% of African
individuals’ wealth is held offshore in a narrow range of financial assets. Oxfam calculates that the $14bn a year that African countries lose to ‘offshoring’ of assets would be enough to pay for healthcare that could save the lives of four million children and employ enough teachers to get every African child into school.
the African continent is subsidising the rest of us All of this tax abuse is supported by vested interests with an aim of keeping the global tax haven system in place. And those vested interests aren’t as far away as you think. The City of London Corporation lobbies hard for the UK financial services sector and for financial deregulation, both at home and abroad. A ‘Remembrancer’ liaises with the UK Parliament, bringing intelligence from the political sphere back to, and lobbying on behalf of, the City.
Britain’s history of ‘light-touch’ regulation leading up to the global financial crisis in 2007/8 has deep roots in the Corporation’s lobbying activities and ideological defence of ‘freedom’ for finance, alongside mainstream private sector financial players. Although the UK’s Overseas Territories and Crown Dependencies have a measure of independence on internal political matters, the City of London supports and oversees them. As Jersey Finance, the official marketing arm of the Jersey offshore financial centre, puts it, “Jersey represents an extension of the City of London.”
The new report released outlines how the UK sits at the heart of this financial secrecy network. The City of London and Overseas Territories are key players in the global tax dodging system, but so too are the big 4 auditing firms, who are centrally involved in much of the profit shifting done by multinational companies. The report concludes by calling for mandatory public country-by-country reporting for all large multinationals, and a public
register of beneficial ownership in the OTs and CDs to ensure that wealthy individuals can’t hide their money away here. Furthermore, it calls for an independent, fully public review of the functioning and operations of the City of London Corporation.
When Oxfam launched its campaign to Even it Up in 2014, we revealed how extreme inequality is spiralling out of control. The report shows how the global system of tax havens and tax dodging is one of the main drivers of the inequality crisis. It enables billionaires to pay lower effective tax rates than teachers or secretaries and starves governments of revenue meaning less money for schools and hospitals. Today’s report provides further evidence of that in the UK. Tax, like any other inequality issue, is
about power. It’s about those at the top rigging the rules in their favour. We need to challenge the power and influence of those that have been setting the terms of the tax justice debate for far too long. We must challenge the vested interests at the heart of the rotten global tax system if we’re going to see tax justice in our lifetimes.
Download the report Ending the Era of Tax Havens: Why the UK government must lead the way
Read more blogs about inequality
Author: Luke Gibson
Archive blog. Originally posted on Oxfam Policy & Practice.