The United Kingdom is, in many respects, the most important single player in the world of offshore tax havens (or secrecy jurisdictions.) It has many offshore characteristics itself, and it runs a network of partly-British havens, whose laws it can strike down when it really wants to. So it is significant that Britain has had an election, which saw a Liberal Democrat/Conservative coalition replaced by a purely Conservative Party government. For those who aren’t familiar with British politics, the Conservatives are the mainstream right-wing party.
Alex Cobham, our Research Director, has a new post at Uncounted which looks specifically at what the election might mean for the world of financial secrecy. Perhaps surprisingly, it is, as he puts it, “powerful stuff.”
Notably, a particular Conservative manifesto commitment, which goes like this:
“We will ensure developing countries have full access to global automatic tax information exchange systems.”
And that is indeed powerful stuff. Here is Alex’ analysis, in detail:
“While transparency measures can sometimes deliver little real change – when they imply no actual redistribution of power – there is no question that this would mark a very real redistribution.
As the leaks from HSBC Switzerland showed, scarcely a country around the world has been able to exert their taxing rights over income held undeclared in secrecy jurisdictions. Estimates of the underlying hidden assets range from seven or eight, to twenty or thirty – trillion dollars, that is.
In keeping with David Cameron’s ‘golden thread’ of transparency and accountability, the previous government was instrumental in the development of the Open Government Partnership, which in turn has driven transparency commitments from member states.
The 2013 G8 that Cameron hosted made a similar commitment, but notably weaker:
It is important that all jurisdictions, including developing countries, benefit from this new standard in [automatic] information exchange. We therefore call on the OECD to work to ensure that the relevant systems and processes are as accessible as possible to help enable all countries to implement this new standard.
And since then of course, things have deteriorated substantially.
While a multilateral pilot of the new OECD standard (itself not without criticism) is going ahead, major players are rowing back. The US has U-turned on its own commitments to provide – and not only demand – tax information. Switzerland has set a course for bilateral rather than multilateral information provision, strongly suggesting that only the strong will be able to benefit from the weakening of banking secrecy.
So the Conservatives’ – and now the UK’s – commitment to ensure full access for developing countries is powerful stuff.
What it means and why it will be tough
The commitment could not be clearer: ‘full access’ can only mean equal receipt of information to any other player in the multilateral mechanism – setting the UK against those who would cynically use poorer countries’ initial inability to provide information reciprocally, as a reason to deny them access.
And there is no qualifier on ‘developing countries’ – this is not some select handful of, say, G20 members. This is a universal commitment.
And so the commitment is a fantastic challenge, because if delivered it could be the greatest shift in tax sovereignty for a generation – from jurisdictions with the ability but not the right to tax, back to those with the right but not the ability.
And it’s also a fantastic challenge because it requires the UK to stand against the intransigence of other major economies and financial secrecy jurisdictions, putting a redistribution of taxing rights to lower-income countries above other concerns.
(And yes, it would seem appropriate if the UK were able to play a major, positive role here – given its historic responsibility for the growth of the secrecy jurisdiction model.)”
Cobham’s next sub-heading goes like this, however: “Insert Cynicism Here.” Quite right too. This government has earned a reputation for cynicism in many areas, and we should be hyper-cynical too. But read on:
“Insert cynicism here
Ah, you say, but this is a government of the elite. Cameron’s own family fortune is based on the old secrecy jurisdiction model. Why would they possibly deliver on this?
Well, you could have said the same in 2013. And many did. But to be fair, whatever you think of the coalition’s domestic inequality agenda, that G8 and the related G20 summit were part of a serious shift. A shift in which the UK did take the lead.
Was it, as one Conservative peer claimed, a counter-strike to block out other tax measures like a haven blacklist? Who knows. The fact remains that what was delivered marks a step change, that has not yet but could very well be of global importance.
What else could go wrong here? Well, it may be that the government had not realised just how big a commitment they were making. After all, the G8 had more or less set the path, the pilot is going ahead – so this may have felt like a commitment just to keep things moving along.
But this is not a new government – the same special advisers, politicians and civil servants who oversaw the 2013 G8 are still in place. This time, for sure, they know what they’ve committed to.
So: park your cynicism. If the government is serious about delivering on this manifesto commitment, then all power to them. Or rather, to the developing countries that would reap the greatest benefit.”
So, we at TJN will give them the benefit of the doubt. We don’t doubt that they worry about how Britain’s role as offshore central risks seriously damaging the country’s international reputation. As this global scandal should.
But the fact that there is at least one powerful incentive to do the right thing – and a clear and explicit commitment to do the right thing – we are cautiously hoping that this means at least a little bit more than “more of the same.” The world has changed.
Let’s see how all this shapes up.