by Michael Robinson
Each year seems to bring new revelations about off-shore finance and rampant tax avoidance/evasion, by amongst others, multi-national companies, celebrities and what are charmingly termed “high net-worth individuals.” These revelations are now so common that they get named for easy identification, much in the manner of annual hurricanes.
In 2016 we had the ‘Panama Papers’, involving the leaking of data amounting to millions of documents detailing the dubious tax affairs of the Great and the Good. The sterling work was done by the German newspaper Suddeutsche Zeitung in collaboration with the International Consortium of Investigative Journalists (ICIJ). A flurry of media activity followed the leaking, with over 100 media groups joining the forensic examination of the papers.
We are often told that Journalism “speaks truth to power”, a phrase appropriated from the American Quaker movement. But to paraphrase Noam Chomsky, ‘you may speak truth to Power, but Power doesn’t have to care.’
And so at the end of 2017 fresh revelations emerged with the publication of the “Paradise Papers”, again through investigation by Suddeutsche Zeitung and the ICIJ. This leak involved the release of more than 1,400GB of data, containing around 13.4 million documents. The leaked data covers a period of seven decades, from 1950 to 2016, giving a comprehensive picture of the abusive tax practices that have characterised the use of “Offshore Financial Centres” (tax havens).
About 6.8 million of the documents come from Appleby – a law firm founded in Bermuda that helps corporations, financial institutions and ‘high net-worth’ individuals to set up and register companies in offshore jurisdictions. It is the largest player in this market with a register of more than 31,000 US clients, 14,000 UK clients and 12,000 clients in Bermuda (which has a total population of around 60,000).
Gerald Ryle, a journalist with the ICIJ stated –
“This leak is important because it’s the high end of town. People may have dismissed the Mossack Fonseca leaks as they were rogue players who would take any client. Most of the offshore world is not like that at all. Here you have the gold-plated company.”
For the few not the many.
Among those reported on by the media were –
- Prince Charles, who had advocated for climate change agreements that would benefit an offshore financial interest,
- Lewis Hamilton who avoided UK import tax on his £16.5m luxury jet, by entering the UK via a short detour and touch down in the nearest tax haven, the Isle of Man.
- Apple (again) maintaining its ‘lowest tax possible’ operating model, using the Channel Island of Jersey.
- UK millionaires who sold their assets to offshore companies, and then became “investment advisors” to those companies, charging themselves for their own services and thereby avoiding tax.
- Three “stars” (sic) from Mrs Brown’s Boys who diverted more than £2m into an offshore ‘avoidance’ scheme, (“evasion” being illegal).
Somewhat embarrassingly, even the Queen was not immune from scrutiny, with the Duchy of Lancaster, her private estate, having been found to have invested millions offshore in the Cayman Islands and Bermuda between 2004 and 2005. (Nothing illegal Ma’am and no suggestion of it from me. Phew.)
Also present amongst the dodgers (my phrase, don’t sue), was the serial dodger Bono, who had invested in a Lithuanian Shopping centre, now under investigation for tax “evasion” (illegal). Amusingly, Ian Anderson, front man for the band Jethro Tull, who partially retired to run a fish farm, was quoted in the Daily Telegraph as saying –
“Bonio, or whatever his name is, said stashing his cash overseas was just down to smart people he has working for him trying to be sensible. So I take it I’m not smart and sensible. Ah well, nobody’s perfect. I paid tax at 83% in the 70s, and although I was advised to move to Switzerland, I stayed here. I don’t regret it. I’m proud to pay tax at 50%. I think of it as half for me and half for the NHS, schools and all the other things we need to function as a society.”
The naming of the ‘shrewd’.
Notwithstanding the public naming of such people, there is something in the carefully contrived use of the euphemistic language that is used to describe such ‘tax practices’ by those in power, which sanitises it and calms the mind. Somehow the ‘sophistication’ of it and the high social standing of those engaged in it, elevates it above things like “corruption” and “cronyism”. Words which are readily understood to provoke the right moral reaction against those so accused. But those strong and emotive words are often reserved only for those Kipling referred to as “lesser breeds without the law” – people like Russian Oligarchs and African leaders like Jacob Zuma.
But the actual effect of tax avoidance/evasion/dodging is often just as morally and economically corrosive. Indeed it is estimated that the equivalent of 10% of global GDP is held offshore, with the UK alone losing up to €12.7bn a year to the Exchequer, (or the common weal).
‘Balancing the Budget’ – the “conventional wisdom”.
A particular vulnerability and additional problem we have is the slavish attachment to avoiding a government deficit by “balancing the budget”. This presumes that public expenditure must always be in equilibrium with the tax revenue received. This “conventional wisdom” is actually a discredited dogma from another age, but it was re-introduced under Margaret Thatcher and Ronald Reagan, who sought to overthrow the post war consensus that had emerged in favour of a mixed economy. By any measure of economic analysis, the mixed economy in the UK, had been reasonably successful in delivering social and economic progress in the post war years. It worked by utilising, in various proportions according to whether the government was Labour or Conservative – active and confident state intervention, with public borrowing, regulation of the economy and direct provision of public services, operating alongside the role of the market.
The “conventional wisdom” behind the ‘balanced budget’ was best described by JK Galbraith in his classic work – The Affluent Society (1958) in the following extracts –
Chapter 2. The concept of the conventional wisdom.
“In some measure the articulation of the conventional wisdom is a religious rite. It is an act of affirmation, like reading aloud from the Scriptures or going to church.” ….
“Through the nineteenth century, liberalism in its classical meaning having become the conventional wisdom, there were solemn warnings of the irreparable damage that would be done by Factory Acts, trade unions, social insurance, and other social legislation. “
“The conventional wisdom had never emphasised anything more strongly than the importance of an annually balanced budget.”
The ‘balanced budget’ was a dogma held in common between Liberals and Conservatives in the USA. In his Presidential acceptance speech in 1932, Roosevelt said – “Revenue must cover expenditures by one means or another. Any government, like any family, can for a year spend a little more than it earns. But you and I know that a continuation of that habit means the poor-house.”
Those of us old enough to remember, will know that Margaret Thatcher entered office explaining that “we can’t spend money we don’t have,” comparing the running of the economy of a state with that of a household, even appearing on camera washing her dishes in a basin with her marigold gloves on, to reinforce the imagery!
The Great Depression.
But, returning to the 1930s and Galbraith. The ‘balanced budget’ dogma was about to be challenged by actual events.
“The shattering circumstance was the Great Depression. This led to a severe reduction in the revenues of the federal government; it also brought increased pressure for a variety of relief and welfare expenditures. A balanced budget meant increasing tax rates and reducing public expenditure.”
“Viewed in retrospect, it would be hard to imagine a better design for reducing both the private and public demand for goods, aggravating deflation, increasing unemployment and adding to the general suffering.” (My emphasis).
One of the US administration’s first steps was to slash public sector pay. But as Galbraith notes, “circumstances had already triumphed over the conventional wisdom. By the second year of the Hoover Administration the budget was irretrievably out of balance. In the fiscal year ending in 1932, receipts were much less than half of spending. The budget was never balanced during the depression.”
John Maynard Keynes – to the rescue.
The explanation for the reason that the heavens did not fall, even though the government were running with an ongoing “deficit” using public borrowing to finance its affairs, and the economy eventually recovered, was outlined in 1936 by John Maynard Keynes with the launch of his General Theory of Employment, Interest and Money. His understanding that in such moments of crisis, governments should actively intervene, by borrowing to invest in the re-growth of the economy and to shore up its fundamental institutions, was then counter-intuitive, but became acknowledged as an empirical fact.
In time “Keynesian principles” started to be implemented and were reflected in the ‘Bretton Woods’ institutions; the World Bank and IMF, established after the second world war. That consensus in the West endured for some time, with President Nixon, an arch Conservative, stating during an economic crisis in 1971, “I am now a Keynesian in economics.”
Reverting to Liberalism.
But the Keynesian consensus didn’t endure and in 2002, not that long after the Thatcher revolution, one of the architects of New Labour, Peter (now Lord) Mandelson wrote an article in the Times declaring “we are all Thatcherites now.”
Chasing down the deficit to balance the budget had become re-established as the conventional wisdom. Latterly, the concept of “deficit denial” has even been laid against Labour by the right wing press, because Jeremy Corbyn and John McDonnell, Shadow Chancellor, have started to challenge the conventional wisdom of ongoing austerity budgets.
Thatcher’s massive programme of deregulation and privatisation had been launched so that the free market could work its magic and deliver public services for less. The Private Finance Initiative formally moved the provision of public services off the balance sheet and as an additional benefit, placed the responsibility for service delivery outside of democratic scrutiny and parliamentary accountability. Questions about the cost and quality of services could be answered with the politically useful phrase – “commercial in confidence”. New Labour embraced it with zeal under John Prescott, who even got PFI written into the party’s manifesto in 1992.
An Eye to the truth
But that which could go wrong, did go wrong, with virtually only Private Eye magazine having the courage and diligence to tirelessly speak up for the public interest. In January this year, the National Audit Office issued (another) scathing report on the private financing of public services, noting that the financing of schools, hospitals etc. had cost billions of pounds more in funding than in using conventional procurement and delivery. This wasn’t much of a revelation to those of us in the trade union movement.
It is worth refreshing the memory as to what New Labour had become, by sharing the following extract from Simon Jenkins’ Guardian column of 21 January 2014, in which he observed –
“Eight years ago, David Craig’s, Plundering the Public Sector, calculated that 10 years of New Labour had seen £70bn vanish from taxes into management consultancy, PFI and IT fees, to no noticeable public gain. Most Whitehall IT projects had been fiascos, and there is a new one each week. The beneficiaries have been the rich: firms such as KPMG, Deloitte, PwC, Capita, Serco, McKinsey and others. Today’s public accounts committee may howl about waste, but the stable is bare and the horses are over the horizon, laden with gold.”
The Labour Party under Jeremy Corbyn’s leadership has recently made enemies of such people, but as we might observe, that is no bad thing. Indeed, John McDonnell is to be congratulated for pointing out that private companies have paid out £37bn in dividends to shareholders since 2010. According to research conducted in consultation with the House of Commons Library, in 2017 privatised firms paid out a total of £4.8bn in dividends. The analysis shows that, since 2010 more than £10bn has been received by National Grid shareholders, £6.3bn by BT shareholders, and £5.2bn by investors in Centrica, which owns British Gas.
Commenting on this, John McDonnell said –
“These figures show what could have gone into investment in these public services in order to expand and improve them or keep their charges down.”
In the House of Commons debate on the Carillion crisis on 24 January 2018, Jon Trickett MP, member of Labour’s Shadow Cabinet, referred to a letter issued by the government citing the names of six companies that would take over the public sector contracts that Carillion had been administering, stating –
“What a catalogue of failure. One of the six companies donated money directly to the Tory party. Two of the firms are known for blacklisting workers. Amazingly, one of the firms is currently under investigation by the Serious Fraud Office for suspected offences of bribery and corruption. Another has previously been caught red-handed mispricing contracts, underestimating their eventual cost. As a consequence, £130 million was wiped off its share value. Another of the companies operates in the Cayman Islands and has been shown to use that location as a way of avoiding tax. Another of the firms is part of a group that has reportedly abused and exploited migrant workers in Qatar. My reaction to all that – I do not know whether it is un-parliamentary – is to use three letters: WTF?
The Conservative members tried to deflect, stating that (New) Labour had been responsible for such contracts in the past, but Jon Trickett continued –
“Thirteen of the 20 largest Government contractors have subsidiaries in tax havens. Those companies are happy to take taxpayers’ money and make a profit, but it seems that they are not prepared to pay tax back, which is morally incorrect and should not be happening. In fact, it is a scandal.”
In an interview in the Independent on 10 November 2017, John McDonnell said –
“The last seven years of austerity has seen working families suffer from stagnant wages, not being able to keep up with prices of items like electricity bills, and underfunded public services – yet billions has gone into the hands of shareholders.
“The next Labour government will call an end to the privatisation of our public sector, and we will look to bring back into public ownership many of the vital services sold off by the Tories, which are undermining the living standards of millions of working households.”
“We’re not Cuba, we’re Northern Ireland.”
The right wing newspapers immediately charged him with “extremism” and even “socialism”. But later in November, on a little off-shore island, radical plans were afoot.
On Wednesday, 29 November 2017 a media statement announced – “NI Water acquires Kelda Water Services interests in Northern Ireland for £28m. The following extracts explain why.
“In a strategic move which brings back into NI Water ownership, all clean water production in Northern Ireland, the company has announced the acquisition of Kelda Water Services’ holdings in four treatment plants that provide almost half of the treated water in the province.”
Len O’ Hagan, Chairman of NI Water said:-
“This represents a strong fit with NI Water’s strategy to provide clean safe drinking water to our customers and to do so in a way that secures efficiencies for our customers and for the public purse.”
“NI Water has paid £28 million to acquire all of the equity in the project from Kelda Water Services’ and will also assume responsibility for associated debt finance. NI Water said the acquisition will allow it to generate value from the project that will feed through to customers by way of reduced water tariffs, reduce resource DEL budgetary requirements and enable it to consider further efficiencies as to how the project will operate going forward.” (My emphasis).
NI Water CEO Sara Venning, said:
“A strong dedicated local team of approximately 30 staff operates project Alpha and we look forward to working with them even more closely as part of the NI Water group.
Welcoming the announcement Mr Peter May Permanent Secretary at the Department for Infrastructure said:-
“When the opportunity arose to bring the contract back into Government, the Department, in consultation with NI Water and DoF, carefully considered the value for money against the benefits to be gained. The outgoing Minister indicated that where affordability and value for money were proven, purchase of the contract could proceed. The completion by NI Water of this transaction will allow them to secure further value to the public purse and will also create an opportunity to free up significant additional operating resource. (My emphasis). We welcome the initiative taken by the Board at NI Water in pursuing the opportunities created by the acquisition”.
Who knew we could be in the vanguard for a resurgence of Labour values and the rescue of the economy from Neo-liberal dogmatists?