Proposal #5: Clamp down on tax evasion through tax havens

By Richard Murphy

A decade ago almost no one paid any attention to tax havens, or secrecy jurisdictions as I now term them. There were two reasons for this. The first was that the secrecy they promoted was very successful – so no one noticed them. The second was that civil society paid no attention to them which meant they went about their pernicious trade without the glare of publicity falling upon them.

Since 2003 that has changed. The Tax Justice Network, based here in the UK but with global links, has transformed this agenda, backed by all our major aid agencies who realise that secrecy jurisdictions impose a massive cost on the developing countries of the world. But the cost is not to developing countries alone. It’s also on us, here in the UK. And there’s little doubt that the impact of the activities of these places in the UK is the same as that in the developing world, which is that the poor get poorer and the rich get richer.

Let me be clear about what a secrecy jurisdiction is: secrecy jurisdictions are places that intentionally create regulation for the primary benefit and use of those not resident in their geographical domain that is designed to undermine the legislation or regulation of another jurisdiction. They do in addition create a deliberate, legally backed veil of secrecy that ensures that those from outside the jurisdiction making use of its regulation cannot be identified to be doing so.

That’s a bit of a mouthful but in essence these places sell services designed to undermine the law in the UK. Much of the law that is undermined is tax law.

I have estimated that the UK loses at least £18 billion a year in tax because of the activities of secrecy jurisdictions. The number is split between X of tax avoidance, Y of tax evasion and Z of straightforward fraud. Of this I have estimated figures for some particular locations. For example the Isle of Man might cost the UK £1.5 billion by itself – not least because, quite extraordinarily we in the UK provide its government with half its income as a direct subsidy – which allows it to both operate as a tax haven and undermine our own income!

So what can we do about this? First, we can withdraw all subsidies from these locations until they meet the same standards of openness that we in the UK apply to companies and bank accounts here. That would mean, for example, they operate complete openness on all income paid to bank accounts in their locations when those accounts are owned by UK based people.

Secondly, they need to tell us about every company and trust run in their jurisdictions that are owned by UK residents – because these are favourite vehicles for tax abuse because of the secrecy they supply.

Third, they have to offer the same information to all other countries.

And fourth, they should get no funding from the UK until they charge acceptable rates of tax on income arising in these places.

This might be tough love. So what? These places have set out to facilitate abuse of the UK legal system: there is no mistaking this. Nothing else can explain their legal systems. The cost to us of the abuse they promote is enormous and those who benefit are those with enough cash available to hide it offshore and multinational corporations who are willing to use these places for illicit tax abuse on behalf of their owners – again inevitably those who are better off. This therefore has massive distributional impacts in the UK: tax is shifted from the best off to those less or least able to pay tax.

This is an issue of social justice, of economic justice, of upholding the rule of law, of collecting tax that is legally due and in paying for the cost of the recession – a recession caused by the very same banks that operate in all the world’s major tax havens,

Outright abuse of this sort has to stop. Now is the time to stop it. The Labour Party has to say it will stop it. This has to be a manifesto commitment: now is the time for those with wealth and a willingness to abuse our tax system to be brought to account.