Even before news broke about the offshore dealings of Panamanian law firm Mossack Fonseca, the British public wanted David Cameron to do something about the UK’s network of secretive tax havens. In a ComRes poll, commissioned by Global Witness and Christian Aid, before the 11.3 million documents were leaked to a German newspaper, more than three quarters of the British public (77%) agreed that “David Cameron has a moral responsibility to ensure that the UK’s Overseas Territories are as transparent as possible.” This figure was higher among Conservative voters (80%) than supporters of other parties and higher still among people older than 45 (85%). The strength of Tory feeling is even greater when asked if “all companies, whether they are registered in the UK or its Overseas Territories, should be legally required to reveal their ultimate owners.” 81% of Britons agreed with this, but the figure jumped to 87% with Conservative voters and 89% of over 45s.
Defenders of tax havens may argue that the Panama Papers story, which has already led to the resignation of the Prime Minister of Iceland, is an overreaction and that these offshore jurisdictions are being harshly treated. It is certainly true that the revelations about the dealings of David Cameron’s late father are a distraction from the real story.
But such scandals go to the very heart of the defence of popular capitalism. As Michael Gove warned in his speech at a Conservative Party Conference fringe event last year, it is vital that a distinction be drawn between the “deserving and underserving rich” and to challenge those who have used their positions to undermine society and “rigged the rules” to their benefit. If the public believe that the economic system is rigged in favour of the elite, that tax is something only the poor have to pay and that secrecy is a commodity to be purchased by the super-rich, then defenders of popular capitalism should be worried.
For many members of the public, one of the tangible benefits of responsible capitalism (along with jobs and innovation) is tax income boosting the nation’s coffers. Therefore when companies are revealed to be bending the rules to breaking point in an effort to dodge their taxes, it undermines people’s trust in business.
But even with the tax discussion thrown out, the secrecy afforded by offshore jurisdictions undermines healthy enterprise. Markets function best with the free flow of information and companies need to know with whom they are doing business. Not knowing the real owners of the businesses one might be dealing with opens up all kinds of dangers, from reputational risk to outright fraud. Among the law-abiding firms using tax havens are plenty of crooks who are taking advantage these information black holes. Considering these jurisdictions’ trade is not asking too many questions, it seems likely that terrorist groups are also using them to move money around the world.
Tax take would also be a more sustainable source of revenue for developing countries than aid and it is often these nations which lack the expertise to keep track of multinationals using offshore chicanery. American economist Gabriel Zucman recently estimated poor countries lose out on more than $240 billion a year.
The good news is that this Conservative Government has the chance to address the problem. As Tim Montgomerie has written in a piece for CapX, “the Tories are the party of law and order rather than the law of the jungle. Unethical business has to be punished.” In it he quotes Sajid Javid’s Conference speech, where the Business Secretary said: “Whether you’re a bank rigging interest rates; a car manufacturer cheating on emissions; or a company not paying your fair share of tax be warned: we will come after you. Because free enterprise is not a free-for-all.”
As the Times editorial pointed out on Wednesday, “no other country in the world maintains and indulges a network of offshore tax havens as brazen in their defence of unwarranted secrecy as Britain’s overseas territories.”
These overseas territories, from the British Virgin Islands to the Caymans, rely on the UK to function. Queen Elizabeth is their Head of State, Britain is their protector and their enabler. Next month David Cameron will host an anti-corruption summit in London. The Prime Minister has the power to require the UK’s tax havens to publicly reveal companies’ real owners, as will shortly be the case for the UK itself. If he did so, he would have the support of the country and his party.