Wednesday, 3 July 2013

Tax tourists and the Tax Avoiders’ Alliance

Health Secretary Jeremy Hunt is determined to crack down hard on "health tourists" - foreign nationals who might come over here and get free National Health Service treatment without having paid in to the system. There's little evidence that it's a significant problem, but foreign freeloaders make perfect scapegoats, so "health tourism" is officially a thing.

'According to official figures, £12m was lost treating foreign nationals - approximately 0.01 per cent of the NHS's £109bn annual budget' (Channel 4 News). British banks are estimated to control something like £1.26 trillion in various offshore tax-havens - that's a huge multiple of the annual NHS budget, rather than a tiny percentage of it (the original version of this sentence contained a careless error on my part, now amended - details of the correction are given at the end of this post). Given that Greece, where the authorities famously took their eye off the tax collection ball, is constantly held up as a cautionary example of what happens to naughty countries, you'd think that our leaders would see closing down opaque tax havens as more of a priority.

But, no, they seem strangely relaxed about tax tourists who like to rest their money in those offshore accounts provided by various British Overseas Territories, Crown Dependencies and suchlike, often beyond the inconvenient scrutiny of the tax authorities. There was a bit of tough talk about tax transparency, ahead of the recent G8 summit, but all we got was the British tax havens' voluntary, partial, conditional agreement to provide more information about the jet-setting, publicity-shy, wonga relaxing in their exclusive money hotels.

And what are these "voluntary agreements" worth? A statement from the premier of the Cayman Islands gives us a clue; 'All of us have the ability to insert reservations in whatever agreements we reach and we get to negotiate each of the individual agreements with each country.' I hear the sound of loopholes being pre-drilled. In an interview with Channel 4 News, the premier of the Turks and Caicos Islands, provided some more clarification:
Q. Can we say with certainty that Turks and Caicos and other overseas territories will have registries of companies telling us who the beneficial owners are and when will we have those?
A. That’s David Cameron’s goal … we cannot say today we will get that because there will be a lot of push-back from companies that have beneficial ownership...
 Q. But all you’ve signed up to is an action plan.
A. Yes to prepare
Q. For possible implementation of possible principles ?
A. Yes
Which brings us back to Evan Davis' excellent interview question. Why does the British government have to negotiate with territories that are under United Kingdom jurisdiction, or are self-governing possessions of the British Crown, and ask them nicely to be just a little bit more transparent, if it's not too much bother? Can't the government just tell them to make their records available for scrutiny and pass legislation to enforce its will where necessary?

Richard Murphy, director of Tax Research UK thinks that playing hardball with British tax havens might be a thing:
...there is no reason to ask the consent of these tax havens for automatic information exchange, transparency, documents on public record or anything else. We can just legislate that they will do these things and the reason why is clear:
Governors or Commissioners are appointed by Her Majesty The Queen on the advice of Her Ministers in the UK, and in general have responsibility for external affairs, defence, internal security (including the police) and the appointment, discipline and removal of public officers. Elected governments have a wide range of responsibilities.
Tax information exchange is quite clearly an issue of external affairs: the UK’s tax havens are not responsible for it; the UK is. This White Paper makes quite clear that local officials do not have authority on the issue. In that case it is time for the UK to act, now.
Unfortunately the British government* and its chums in the City of London don't seem to be pushing very hard to make it so.**

Fortunately, there's an influential right-wing think tank that should be holding the government's feet to the fire on this one. It's called the Taxpayers' Alliance.

I don't normally have much time for obscurely-funded right-wing think tanks, but I'm sure this one can't let such an important issue drop. After all, its mission statement is right there in the name. The Taxpayers' Alliance. Nominally, an alliance of, or with, those people the politicians can't speak highly enough of, those "hard-working families" who "play by the rules" and "do the right thing" (like contributing to the economy and paying their taxes). Friend to people who keep their noses clean, enemy of special-interest groups and freeloading scumbags everywhere. Surely they'll get hold of the issue of tax transparency like a terrier with a rat and won't let go?
However speaking to Channel 4 News, Matthew Sinclair, Chief Executive of the TaxPayers' Alliance said that while the agreement was a step forward, it did not fully address the issue.
He said: "International co-operation on transparency will help reduce tax evasion. But the measures are a side-show that don't address the fact that our tax system is fundamentally dysfunctional.
"We need comprehensive reform to simplify our needlessly complex tax code and reduce the punishingly high rates which drive money out of the UK, legally and illegally.
"We need a much simpler system that encourages investment into the UK and ensures that everyone pays their fair share of tax, no more and no less."
Is that it? The CEO of the Taxpayers' Alliance thinks that tax transparency is some sort of 'side-show' and can we talk about something else now, please. Why so timid, Matthew?
The Taxpayers’ Alliance, arguably the most powerful pressure group in the UK provides another example of the political power of tax avoiders. In 2008 the group was cited by the most popular newspapers, the Sun 307 times and the Daily Mail 517 times, and it has frequently appeared on popular news and current affairs programs like Newsnight. Yet the group’s chief executive, Matthew Eliott,*** has been forced to admit that he does not pay tax in the UK. One of their biggest donors, Sir Anthony Bamford (personal fortune around £950 million), also a major Conservative party donor, was blocked from receiving a peerage by HMRC, although HMRC refused to explain why. It seems likely that he was avoiding taxes on a colossal scale. Perhaps the Tax avoiders’ alliance would be a more appropriate name? 
Symmetry Breaks

And there was I, thinking the Taxpayers' Alliance did what it said on the tin. D'oh!

With allies like that, we don't need enemies.

*Headed by David Cameron, who inherited a tidy sum of money that spent years sitting in a tax-efficient offshore investment fund set up by his dad (say what you like about the Camerons, but at least they're more competent tax avoiders than the Farages).

**There is an argument that, if we crack down on British offshore havens, the money will just move from British tax havens to foreign-controlled ones. I don't really buy that one - after all, there are things like international negotiations, treaties and so on. Maybe the British prime minister could just pick up the phone to Mr. Obama and agree that it would be a win-win for both countries if we sorted out the Caymans and he got a grip on Delaware. Agree with our European partners that we'll put Jersey on a shorter leash, if they get Luxembourg neutered. A bit more of that sort of thing and the tax avoiders will start running out of places to hide.

Easier said than done, but isn't this the sort of determined, concerted action that all those world leaders were promising to take in the wake of the global financial crisis?

***Wot, two Matthews? Just to clarify, Matthew Sinclair replaced Matthew Elliott as the boss man of the libertarian conservative (big and little "C") pressure group / think tank in 2012.

Correction and update

 I originally said 'British banks are estimated to control something like £1.26 trillion in various offshore tax-havens - that's six times the annual NHS budget', a figure lifted from here. Given the £109bn annual NHS budget quoted by Channel 4, the basic maths can't be right. Apologies for the sloppy error, but my substantive point, that tax tourists cost a tiny percentage of the NHS budget, whilst the Treasury loses a big multiple of that budget to tax avoidance in tax havens, stands, so I've amended the post to reflect this more general point.

The 'six times' figure came from the article's comparison of the planned UK health, education, welfare AND defence budgets for 2014, with the tax receipts that the UK Government knowingly loses to offshore tax havens, according to a 2012 report from the Tax Justice Network.

The exact figure, how much of it should be going to the the UK government and how much of what's owed is actually recoverable, are all up for debate. But even a simpleton should be able to grasp the basic point. The cost of health tourism here is small, but the Cayman Islands are far away, (although the pile of money "resting" there is big).