Tax Havens are Uncivilized : Closing the Tax Gap

Providing a quality standard of living for a civilized nation

What do we want? What do we need? How do we provide it?

A civilized nation looks after its citizens’ health, ensures a good education for all, and takes care of the vulnerable. There is general agreement in this regard, but we hear so often that we cannot afford it, we are told that there is a deficit and therefore cuts are necessary. Labour needs to show that there is an alternative to cuts, and that cuts to public services will in fact lead to a crisis.

Furthermore, we must invest to avoid a recession. Fiscal policies must be closely examined and a fairer distribution of the wealth generated within the UK. This is the recovery, which will lead to better lives for ordinary people. These are the policies, which will change lives for so many. This is the way forward to reverse the ever widening pay gap between very rich and the poorest in our society.

The Tory right-wing press stirred up much alarm at election time and convinced a fearful electorate that there was to be an imminent collapse of the UK economy. Questions are now being asked about the wisdom and truth, of a potential sovereign debt crisis, reporting of which emanated from the pages of Fleet Street. Labour’s argument, which needed to be heard in May 2010, now needs to be made clear. There is abundant evidence that cuts to public services are unnecessary and dangerous. Let us begin by presenting the UK debt in perspective.

This graph from the PCS Union pamphlet, indicates that the UK annual debt was barely a quarter of Japan’s equivalent debt, and substantially less than those of the US, France and Germany. How clearly was this argument presented at the election? Why were these statistics not taken seriously by the media?  (1)

From 1918 to 1961, UK debt was over 100% of GDP. During this same period there was creation of the NHS, the welfare state, comprehensive education, the building of millions of council houses, and there was growth in public sector employment. And employment in the construction industry.

Investment for growth

Kelvin Hopkins MP (6)  said he never has accepted the Neo-Liberal Consensus, The uncritical acceptance of this brought the world very close to a financial catastrophe in 2008.

After WW2, in 1945, the implementation of Keynesian Economics  had eventually resulted full employment. The Keynesian policies  adopted, included public ownership, development of the NHS, the National Grid, a massive building programme and a redistribution of wealth, through tax, grants and welfare.

As the PCS Union observe:

The NHS is in great difficulty; The Care sector is in crisis resulting from privatisation and collapse of Southern Cross. There is an acute housing crisis, with private rent for property becoming unaffordable for many. We must rebuild and provide affordable rented housing and invest in national renewable energy. Furthermore, we should invest in schools, railways, and hospitals. 

These measures will provide employment, which is the only way to assist economic recovery, because greater numbers of economically active citizens results in greater levels of income tax. It will enable more citizens to be economically active and contributing to income tax.  This can be afforded and Keynesian economics is proven. It works. Investment is the way out of recession. It does not lead to it.

The Coalition government’s policies of cuts, privatisation and outsourcing threaten our public services and will have deep and harmful effects on ordinary peoples’ lives. They will lead to increases in poverty, homelessness, a two-tier education system, and a two-tier health system. Such policies are likely to shorten lives, and tragically may well lead to suicides. These policies are solely are based on the ideological belief that public is bad and private is good.

Privatisation of public services is misguided, or cynical, because privatisation is no solution to the national debt.  Instead it is clear that the real motivation is that “Welfare is an annual multi-billion pound market, despite the government’s own research showing Job Centre staff outperform the private sector in helping people back to work” (1)

The PCS Union says.” Public services were won by trade union struggles in an effort to establish the basis of a civil society. Driven by the desire for maximum profits, the private sector fails to provide effective and efficient public services.”

This wholesale privatisation does not have a mandate. Conservative and Liberal Democrat Parties, which did not achieve a majority, are introducing these policies, which were not made transparently clear in either party’s manifesto or their pre-election speeches.

The country’s public services have only just recovered from the damage caused by actions of Margaret Thatcher’s governments. The Coalition’s policies will plunge the UK population into life crises and poverty of Dickensian magnitude. The Liberal Democrats support these policies despite overtures to the contrary. They could walk away. These austerity measure policies are a huge mistake, and can only lead to further economic gloom. The austerity policies imposed in Ireland resulted in yet further austerity measures and their present economic crisis. The UK should not make the same mistake.

The Tax Gap

It is estimated that there is £120 Billion tax gap between the income tax, which should be collected, and the tax revenue, which is actually received.

£25 bn. is lost annually in tax avoidance, and a further £70 bn. in tax evasion by larger companies and wealthy individuals. An additional £26 bn. is going uncollected.

(Tax Justice Network)

The tax gap is more than three quarters of the annual deficit. Many of these unpaid taxes could be recovered to pay off the structural deficit, without a need for an increase in basic rate of income tax.  At present, our personal tax system unfairly burdens the poorest fifth 39.9% of their income in tax, while the wealthiest pays only 35.1%. Much of this can be claimed, even without any rises in basic rate of income tax.

Wasteful expenditure:

While investment in the public sector is the way to economic recovery, savings could be made by cutting wasteful expenditure. (1)

  • Employing just one Tax Compliance Officer could reclaim £658,000 of this unclaimed tax. Obviously, employing more officers for tax collection would visibly erode away that tax gap.
  • The £1.8bn, which is spent by government on private consultants, is utter, avoidable waste.
  •  230 pay bargaining networks could be reduced to one efficient national bargaining structure.
  • Trident costs £1.5 bn. per year.
  • The ‘unwinnable” war in Afghanistan wastes a further £2.6 bn. per year 

The public sector and the public it serves is being made to pay for this waste. And it is the public sector workers, who are unjustly banned.

Who are the Real Culprits?

Non-collection of  £26 bn. tax should be readily easily addressed, and also wastage, but how can the bulk of tax avoidance and tax evasion be addressed?

Technically tax avoidance is legal but tax evasion is not. The truth is, there is such variance between laws in various city-states, and ‘tax havens”, that no one is really sure of what is legal and what is not.

Indeed, it was Dennis Healey, who once famously described the difference as the “thickness of a prison wall”. Both are forms of tax abuse. So-called tax havens, and their offshore equivalents are both subject to the same accusations of harmful competition, free riding, parasitical behaviour and cheating.

Morally this is all theft. Profits, which derive from one state, should be liable to taxes within that state. The secrecy of the financial arrangements of multi national companies who register for Preferential Tax Regimes (PTRs) with tax havens and off-shore financial Centres (OFCs) is being challenged, and rightly so. An approach to tackling secrecy has been proposed for multi-national corporations. Companies need to prepare accounts for auditing but because of the secrecy it is almost impossible to determine where a multinational company trades, where it makes its profit, where it locates its assets and where it pays its tax.  (3) Civil Society Groups, led by the Publish-What-You-Pay and the Tax Justice Network argue that these corporations should be required to account on a country-by-country basis.

Straightforward action

Richard Murphy, the former KPMG accountant turned tax justice campaigner who this web channel named one of its Heroes of 2010, says that doing so would be quite straightforward.

“Tax havens are the place where multinational corporations hide their profits,” he told me. “We could stop that. Country-by-country reporting in their accounts would tell us where they hide every penny of their profits around the world, and where they avoid their taxes. It would be game over for the tax avoiders.” (4)

Is this Civilised?

Civilised societies cannot allow this to happen. It has gone on for too long. The shadow economy of tax havens and offshore systems acts to hide away secrets of tax evasion, money laundering and fraudulent sequestration  of  international “Aid” as well as theoretical legal tax avoidance.

  • Tax havens have declared war on honest, law abiding people around the world
  • Wealthy individuals hold over ten trillion dollars offshore
  • Tax havens are the most important single reason why poor people and poor countries stay poor
  • Britain and the United States are the world’s two most important tax havens
  • Public assets such as schools, hospitals, civil-service systems are being stripped and offered to profiteers.
  • Public assets were paid for by the public purse by honest workers who pay tax.

A Better Way

  • Assets stripped from the public sector by this Coalition government must be returned to public ownership, it must be in Labour’s manifesto and made very clear in the Press.
  • The press sleaze currently filling our airwaves as a result News International criminal practices, exposes the extreme bias and manipulation by the Press. Labour has always struggled to get the people’s message across. Now there is an opportunity to hit back! Labour must undertake a reform of the media network.
  •  No individual or company should be allowed ownership of more than one newspaper and they must be a resident British/EU citizen. It should not be permitted to own both a newspaper and a TV/Radio company.
  • Labour needs to show the voters where the “fruits of their labour” are being hidden away.
  • Labour needs to expose the greed and corruption of tax abuse and to show how the obscene profits from multinational companies are stashed assets in Tax Havens and OFCs. This results in the haemorrhaging of huge amounts of national income, and causes poverty, deprivation, ill health and homelessness. , not only in the UK but also for the population of the Tax Haven.
  • Reform of tax abuse is clearly essential to halt the bleeding away of the country’s assets, and the wealth returned to those from whom it is derived.
  • Labour should invest in public services, in construction of hospitals and affordable rented housing and facilitate full employment.
  • Labour should invest in and renationalise railways and utilities.
Labour should invest in a mass programme of insulation, new sustainable “council” houses, renewable energy, and green industries such as the building ofelectric cars and an HVDC National Grid in order to make Britain Zero Carbon by 2030.
REFERENCES and Further reading: 
  1. There is an alternative: The case against cuts in public spending (Public and Communications article pdf, pamphlet), download from: http://www.pcs.org.uk/en/campaigns/campaign-resources/there-is-an-alternative-the-case-against-cuts-in-public-spending.cfm
  2. Richard Murphy’s Blog: Tax research UK http://www.taxresearch.org.uk/Blog/richard-murphy/
  3. Tax Havens: How Globalization Really Works  Ronen
    Murphy, Christian Chavangneux
  4. Treasure Islands (Tax Havens and The men who stole the World), NicholasShaxton
  5. Daily Finance article How to tackle tax havens. http://www.dailyfinance.co.uk/2011/06/17/how-to-tackle-tax-havens/
  6. Kelvin Hopkins MP Keynesianism Works!


One thought on “Tax Havens are Uncivilized : Closing the Tax Gap

  1. Pingback: Keynes’ missing piece | Think Left

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