Alex Cobham ■ The UK’s #ImperialInequalities: Past, present and future
History faces forwards as well as backwards. Yesterday with our friends at Tax Justice UK we published new work with the Foreign Policy Centre outlining how the UK could embrace a new role in taking forward an agenda to undo the worst harms of its global ‘tax haven’ network, while supporting its dependent territories to find alternative development paths. We’re also in the middle of hosting a two-day online conference on ‘Imperial inequalities: states, empires, taxation and reparations‘, bringing together cutting edge research and policy analysis.
For the UK, the looming exit from the European Union has surfaced public and political sentiments about reclaiming an imagined golden past of benevolent, imperial leadership; while the prominence of the Black Lives Matter protests, and the continuing rights abuses inflicted on the Windrush generation and their descendants, has made it harder for those who would ignore at least some of the structurally racist legacies of the empire.
This time last year, at the debate on the Queen’s Speech on, the newly elected Prime Minister Boris Johnson announced his plans for Brexit and beyond:
“This is not a programme for one year or one Parliament; it is a blueprint for the future of Britain. […] I do not think it vainglorious or implausible to say that a new golden age for this United Kingdom is now within reach. […] As we engage full tilt now in this mission of change, I am filled with invincible confidence in the ability of this nation, our United Kingdom of Great Britain and Northern Ireland, to renew itself in this generation as we have done so many times in the past.”
The UK’s ‘tax haven’ network
Such a renewal requires, perhaps, a clarity about the present situation. Our recently launched State of Tax Justice 2020 provides a categorical assessment of one aspect in particular. In the first truly comprehensive evaluation of the scale and pattern of tax revenue losses around the world due to cross-border corporate tax abuse and offshore tax evasion by wealthy individuals, we find that the UK itself is responsible for around 10 per cent of all global losses inflicted on other countries. When we include the UK’s Crown Dependencies and Overseas Territories – including Cayman, the most damaging of all – this UK network is responsible for more than a third of all global losses, roughly $160 billion a year.
While the State of Tax Justice 2020 has received greater global media coverage in its first two weeks than any other tax justice analysis, ever, the UK coverage has been relatively muted. It is strange, in some ways, to contrast this with the great soul-searching over the government’s decision to cut UK aid spending at a time of rising global hardship.
The UK network is built upon financial secrecy – obscuring both the illicit shifting of multinational companies’ profits, and the anonymous ownership of assets and incomes streams, untaxed. As I will present in my paper today in one of the later sessions of the conference, this is what emerged from the period of formal Empire. Dr Vanessa Ogle’s research, which she presented in yesterday’s keynote, has shown how the first global period of illicit financial flows – as opposed to brute force extraction – was characterised by imperial actors seeking to take their ill-gotten gains out of colonies approaching independence, but without bringing them back into the tax net of the parent country. Our own Nick Shaxson has documented in his book Treasure Islands how the UK government eventually agreed to encourage smaller dependent territories down the path of offshore finance, in order to reduce demands on UK aid and to support the preeminent position in global finance of the City of London.
While British policymakers worried about potential for ‘financial wizards’ in the territories to undermine British tax revenues, they showed no concern for any other country’s revenues. Nor did they worry about the inequalities and broader damage that might be imposed on the dependent territories, due to the political, economic and social threats – now better understood as the ‘finance curse’ – of a disproportionately large financial sector.
The UK as a transparency leader?
But the UK has sometimes provided important international leadership in the area of financial transparency. In the wake of the global financial crisis, in 2009, it was Prime Minister Gordon Brown who ensured that – for the first time ever – the G20 group of countries would work on the basis of a ‘tax haven’ list that reflected an objectively verifiable criterion, on jurisdictions’ participation in the exchange of financial information. That laid the grounds for the subsequent development of a multilateral instrument for automatic exchange, which in turn has brought trillions of dollars in offshore financial accounts into the sight of tax authorities.
Brown’s successor David Cameron moved from the ‘A’ of automatic exchange to the ‘B’ of beneficial ownership transparency, and at the G8 in 2013 led the way in establishing a public register of the ultimate owners of UK companies, and in promoting this around the world. And on the ‘C’ of our ABC of transparency, Cameron’s Chancellor, George Osborne, accepted an opposition amendment to allow the Treasury to require that multinational companies publish their country by country reporting, to lay bare profit shifting, and although he refused to enact it without multilateral agreement, he did go to the EU to lobby his fellow finance ministers to this end.
The current UK government, however, appears to have set a course for financial opacity – in each area of the ABC. Some countries are now publishing bilateral, aggregate data on their automatic exchange of financial information, which allows accountability for tax authorities as well as individual financial centres; the UK refuses. Some countries, including the member states of the EU, are now publishing beneficial ownership registers for trusts and foundations; the UK, as a leading trust jurisdiction, does not. Most countries agreed to provide aggregate country by country reporting data for the OECD to publish jointly – the UK U-turned on this commitment.
Away from tax, there are growing questions about the UK government’s refusal to publish details of many billions of pounds in public procurement during the pandemic, which has been shown to include multiple contracts at prices well in excess of market rates, and in many cases involving people with connections to the governing Conservative party, or to individual ministers or officials. As the National Audit Office concluded in its ‘Investigation into government procurement during the COVID-19 pandemic’ published on 18 November 2020:
“[We] found specific examples where there is insufficient documentation on key decisions, or how risks such as perceived or actual conflicts of interest have been identified or managed. In addition, a number of contracts were awarded retrospectively, or have not been published in a timely manner. This has diminished public transparency, and the lack of adequate documentation means we cannot give assurance that government has adequately mitigated the increased risks arising… [T]here are standards that the public sector will always need to apply if it is to maintain public trust.”
Recommendations for renewal…
While the idea of ‘a new golden age’ might be contested, the potential for renewal is clear. The later sessions of our conference consider policy around reparations for slavery and empire, issues in respect of which UK policymakers can expect to hear increasing demands for action. But right now, it seems the government is looking to establish a UK profile in the world which is not defined by that which it is not (an EU member, or an imperial power; or, now perhaps, a leading aid donor).
Looking ahead to 2021, there are two obvious opportunities: the UK’s hosting of the COP-26 climate talks, and of the G7 group of major economic powers. Leaving climate questions for our climate justice conference next week, the G7 offers the UK government a platform to establish a position on global economic or financial questions.
Given the critical analysis above, it might be tempting to seek to avoid any discussion of tax or transparency. But these are areas where the UK has been able to position itself well before, and which play to the significant leverage that the UK has, given the scale of its network. In fact, this is one of a diminishing number of areas where the UK retains disproportionate international influence.
In the article with Robert Palmer of Tax Justice UK, and our own Andres Knobel, and published by the Foreign Policy Centre, we make recommendations of two types – the immediate priorities for the UK to take forward, for itself and the wider network; and the critical need finally to support the members of that network to be able to pursue alternative development paths:
- The UK should leverage its chairing of the 2021 G7 and its preeminent position in international finance by taking leadership on financial transparency, with commitments to:
- publish aggregate data on the automatic exchange of financial information to curb further the threat of bank secrecy;
- extend, improve and connect public registers of beneficial ownership to eliminate anonymous ownership of assets; and
- put into practice the existing legislation to require public country by country reporting from multinational companies, to curtail profit shifting.
- The UK should ensure the rollout of all these measures across its network, by working with the Overseas Territories and Crown Dependencies – including through substantial financial support to repair the damage of the UK’s having promoted their offshore financial secrecy role over decades, and to assist the transition to alternative economic development paths.
The UK owes a debt – to these territories, for the road it pushed them down and the damage that has done them; and to the wider world, for the compound costs over decades of the tax abuse and corruption facilitated. Taking a lead on these core aspects of tax and financial transparency, and working to support the network’s shift, would allow the UK to ‘stop the clock’ on this debt – as the basis, perhaps, for a genuine renewal.
Perhaps more compellingly for politicians with immediate pressures, the steps outlined would also help to address the pressure for tax revenues at home.
The UK is one of the biggest losers to cross-border tax abuse, suffering an estimated $40 billion in revenue leakage due to the combination of profit shifting and undisclosed offshore assets. That works out to more than 5% of pre-pandemic tax revenues, and over 18% of the sorely stretched budget for public health – or the annual salaries of an extra 840,000 nurses.
It is clear that the UK, like most others, must take steps to address their revenue position over the coming years. A progressive approach would include the above transparency measures and further steps, to address the scale of the abuse of current taxes; and then the introduction of additional measures, as we called for globally in the State of Tax Justice 2020, with our partners in the Global Alliance for Tax Justice and the global union federation, Public Services International:
- Excess profits taxes on the large multinational corporations whose profits have soared during the pandemic while local businesses were forced into lockdown
- Wealth taxes, recognising the explosion in the asset values of the wealthiest since the pandemic began, even as unemployment has soared to record levels in many countries, to ensure that those with the broadest shoulders contribute as they should at this critical time.
- UN tax convention: A global tax system that loses – conservatively – $427 billion a year isn’t a broken system, it’s a system programmed to fail. As the UN FACTI panel is now exploring, a tax convention could deliver multilateral commitment to the ABC of transparency; a centre for monitoring taxing rights by using the data that results, to explore international patterns of revenue losses; and an intergovernmental forum to set global tax rules, finally, in a broadly transparent, inclusive and accountable UN setting.
The US beneficial ownership law has its weaknesses, but it’s a seismic shift
Argentina keeps pushing to be at the vanguard of transparency. Now they need to make more information public
How a mini movement overturned secret US shell companies
Data havens: how to tackle the new digital race to the bottom
Taxing Wall Street: the Tax Justice Network December 2020 podcast
The Corporate Tax Haven Index: a Joint Research Centre audit
How tax havens support fossil fuel companies
Imperial inequalities: states, empires, taxation & reparations: online conference
$427bn lost to tax havens every year: landmark study reveals countries’ losses and worst offenders
The State of Tax Justice 2020
20 November 2020