Two days in. Lots of column inches. But what will it all mean for the future? Some embarrassment, a scalp or two, then business as usual? Or meaningful change?
Corbyn is right. We could, if we wanted, compel ‘our’ tax havens to deliver transparency. This excellent Global Witness piece gives specific examples of a number of recent instances where we have legislated directly and against the will of British Overseas Territories.
Some writers assert that, somehow, tax is different from those examples. But there’s little to support those assertions. If you accept that you can cross the Rubicon for one purpose it’s difficult to sustain an argument you can’t cross it for some other.
So, why don’t we?
It’s neither attractive nor, to me, plausible to suggest that the Conservatives are indifferent to the moral quality of the actions of those who avoid or evade tax – or those who facilitate it, be they professionals or tax havens. It is certainly true that the revelations so far have revealed a preponderance of individuals with some connection to the Conservative Party. But there is a natural and plausible explanation for this.
There is an almost perfect correlation between being an offshore tax avoider or evader and being wealthy. That correlation follows from the considerable costs of establishing and maintaining an offshore structure. There is also a correlation – less close but still – between being wealthy and voting Conservative. Accept the logic of these propositions and you avoid the need to impute anyone with a moral ugliness that experience tells me is a rarity, on any part of the political spectrum.
The explanation, I believe, is more likely to be found in the Conservatives’ assessment of what the public interest demands, both here and in those Overseas Territories.
A substantial part of the City is engaged in the servicing of the global wealthy. We have ceased to be the holders of wealth and have instead become their butlers. The City is, when it doesn’t fall over at least, a huge contributor to the financial health of the UK. All of this poses a quandary: how much ugliness should we tolerate to sustain or even increase that contribution?
I don’t want to answer that question, yet at least. I just want to pose it. What price our moral principles?
So far as our tax havens are concerned, the picture is much the same. Tax havens compete on a variety of criteria. Some of these carry no moral component: political stability, language, proximity, sophistication of service, legal familiarity, judicial independence.
But some do: transparency (more is less) and opacity (less is more). And a whole variety of soft factors: what quality of information will local financial services professionals demand for compliance procedures, how quickly and enthusiastically will local tax authorities respond to requests for information from overseas tax authorities, how vigilant will they be when it comes to updating registers, what is their reputation with the tax authorities of real countries and so on.
Sophisticated players in the market will have a keen sense of where the various tax havens rest amidst this competitive ecology.
Disrupt that ecology and – this will be the Conservatives’ fear – you will kill the tax haven. It will cease to enjoy the position it did in the market and whatever wealth that position delivered to the population of the haven will be lost. What is the point of doing this when other tax havens continue? The net gain to morality will be nil.
This will be the unspoken logic of the Conservative Party which bears the burden – so long as it remains in Government – of having to make hard decisions.
And this logic is, it seems to me, perfect. But also very limited. Because collectively tax havens serve no useful purpose. Their aggregate effect on the global economy is huge – and hugely negative. They disrupt the ability of governments to achieve political ends through diplomatic means. They permit criminals to enjoy the fruits of their crimes. They enable to be hidden from the eyes of the electorate that which it should know. They facilitate the theft of public assets by public figures for private gain. And, of course, they diminish our Governments’ treasuries to the benefit of a wealthy few.
These factors are profoundly compelling. And their presence – and their effects – has blighted our societies for decades, and will linger. It will linger for so long as governments fail to demonstrate leadership.
The perfect logic that I described above is limited because it prefers the modest short term gains from protecting the contingent revenue streams of small haven economies to the substantial long term gains from tackling these profoundly negative effects.
Let me, against the background of that discursion, return to the question with which I started.
Where is the story going? Will we see meaningful change?
The electorate wants what looks to it like justice. But, or at least this is my view, politicians are apt to underestimate the strength of that desire for ‘justice’. And inclined, also, to underestimate the price the electorate will pay to have it. The Conservatives are not ignorant of this public desire, of course. And they have a record – not unblemished but nor unimpressive – of tackling personal tax avoidance. But on tackling evasion, I cannot claim to be optimistic about what the Government will do.
There is incontrovertible evidence of profound under-resourcing of HMRC. And the appointment of Edward Troup, a civil servant’s civil servant, as Lin Homer’s replacement does not signal a desire to change HMRC’s culture so as to prioritise the signal banging up of one or two upper middle class tax evaders. The rhetoric, of course, thrills. But the evidence is that the reality will fall some way short.
But will we force our tax havens to up their game? Here, too, I do not expect meaningful change. We will hear, again, the rhetoric designed to quieten the mob outdoors. But I do not believe the Conservatives’ instinct to preserve the status quo will change.
Yet I do not think the mob will swallow what the Government would have it eat. We will continue to see the absence of delivery and not be distracted by the rhetoric. But this, of itself, will not deliver change.
The real value of stories like this is that they raise the political price of inaction. But for so long as Labour is not, electorally speaking, at the races the Conservatives can pay that higher price. The power of the electorate to compel change is dispersed by an absence of threat. The conservative instinct will prevail.
Stand back from all of this. Where are we?
The nature of the revelations – both their huge scale and their intimate detail, the quality of the names, the size of the sums, the ugliness of the conduct – cannot but take us a further step along a long road. But, without viable political challenge, I regret that I do not see meaningful change immediately ahead.
Jolyon Maugham QC (pictured) is a barrister practising from Devereux Chambers and has advised the Labour Party on its reform to the non-dom rules. He blogs at Waiting for Godot – Musings on Tax and can be found tweeting here. – See more on the Panama Papers here and ‘Comment: Shifting the Overton window – Panama Papers will change the consensus on tax (and boost corporate law firms)’