Which control needs taking back and how can the many benefit from the few? The power of wealth is feeding inequality. Brexit will protect those with offshore money and tax avoiders, while social services will suffer more, but politicians on the left lack the courage to speak out.
To most people patriotism means caring about and doing what you can that is best for all the people in your country, while sovereignty means keeping – or taking back – control over institutions that exist for that purpose.
In the context of Brexit, the first question to ask is: who benefits from the supposed taking back of control which its advocates never stop calling for?
The term Singapore-on-Thames was much talked about by Theresa May in 2017, as a way of saying that Britain could become a successful global player arising from the ashes of Brexit. The Brexit vote has often been said to be a protest by northerners against being ignored by a government that is very occupied with London’s interests.
Although there were strong pro-Brexit feelings in some Northern areas, the actual numbers – a referendum doesn’t recognise constituencies – were in the affluent south, outside London, especially home owners and people on good pensions: Zoe Williams describes them as those with wealth, and this is a key term that identifies one of the big issues behind Brexit.
Wealth – which is already taxed in some EU countries – is what you own, not what you earn, so those who have a large amount of wealth are practically exempt from the present tough employment market, and zero-hours contracts.
But the contrast affects industry too. A manufacturing company will obviously prefer countries with low rates of corporate tax, such as Britain where the rate was cut in 2010 from 28% and is set to fall to 17% by 2021, and Ireland where it is only 12.5%.
The UK has benefitted by attracting companies such as Fiat to set up a base here, but the Institute for Fiscal Studies estimates that the tax loss is close to £20 billion annually.
But while capitalist manufacturing employs people and pays taxes on their earnings, offshore financial services merely process wealth, employ few people, and pay very low tax rates on the vast profits they make. The trend towards a workless society will push this to a crisis globally.
Josh Hamilton points out that although recapturing sovereignty or control is a powerful idea, there is another lack of control which has received less attention in mainstream media – tax avoidance and Britain’s ‘spiders web’ of offshore ex-colonies. In 2015, the EU announced plans to combat “industrial-scale tax avoidance by the world’s biggest multinationals”.
There is a clear political split on this issue among British MEPs because the Conservatives, DUP and UKIP voted against these EU plans in 2015, while Labour, LibDem, Plaid Cymru, and Greens voted in favour. And it has since been discovered that Cameron wrote to the President of the European Council in 2013, arguing against publishing the names of the ultimate owners of offshore trusts.
It was later agreed that they would have to report their ownership to the UK tax authorities – but not to a public register. This was despite Cameron’s avowed wish to crack down on tax-avoidance by companies. So, why the difference?
The picture is building up – what could possibly explain the rush of the Brexit gang to get us out of the EU when we always thought that the Conservatives were the party of business?
To answer that we need to take on board the history of the UK and the huge changes in financial services that have happened since the de-regulation of the London stock market in 1986, especially involving offshore tax havens.
This is set out in all its rotten glory in Nicholas Shaxson’s book Treasure Islands (2012), from which I will cite a few examples.
Islands are often mentioned, especially the Cayman Islands, and much nearer to home: Jersey, where John Christensen had insider experience. We can list four advantages an island offers: first is that it is cut off from a mainland country which usually has a big interest in its dealings – making it easy for them to say ‘nothing to do with us’ and maintain their image of respectability. Britain’s colonial history has played a large part in creating these relationships, the British Virgin Islands, Hong Kong and Gibraltar being more examples.
Secondly, islands often have few natural resources, and are very willing to look at ways of attracting businesses that require so little infra-structure.
Following from their remoteness and small populations, their local governments are often run by a small clique without a high level of education or financial awareness. Consequently, they are willing to provide off-the-shelf laws to suit the desires of financial interests; and because everyone knows everyone, it is near impossible for a whistle-blower to be able to act before they are identified and deported.
Shaxson offers the image of the City of London sitting at the centre of a ‘spider’s web’ of nebulous networks, ready to receive the cash being invested through these tax havens.
The sums involved are so vast that it makes sense to talk about countries competing on the basis of the taxes they charge, rather than the value of what they produce: a race to the bottom.
It must be said that a great deal of this moving of cash is perfectly legal -which is why the EU wants to restrict it, and why secrecy is such an important issue.
And secrecy has also been a feature of the Brexit campaigns -secrecy about who paid for adverts on social media, on both sides, but especially the leavers, who were criticized by the Charity Commission which is investigating political bias by the Institute of Economic Affairs. This story continues, and shows that the law needs updating for the internet age.
Many of the Brexiteers have offshore investments, and Arron Banks donated £7.5 million to Nigel Farage’s Leave.EU campaign, but has not made clear where this money came from. Some of these characters were mentioned in the leaks that became known as the Paradise Papers.
Jacob Rees-Mogg also has investments abroad in a complex web of companies, including his own Somerset Capital Management LLP.
We will look at the meaning of LLPs, or Limited Liability Partnerships, in another article.
And as for Singapore-on-Sea, Martin Wolf pointed out that investment rates are much higher in Singapore than in the UK so that economic success is consolidated, and education and transport infra-structures are of very high quality.
Singapore also participates actively in the regional ASEAN association, while our Brexiteers are busy trying to prise the UK out of the only regional grouping which has given us the best set of economic conditions we could ever have, plus the stability to maintain our attractiveness to global companies.
And if the UK disengages from EU plans to strengthen their controls against offshoring, there is “No telling the power they would hold over other members of the EU”. We can imagine that even if we do not finally leave, the Brexit Party will continue to function as a Trojan Horse within the European Parliament, hoping to sabotage all attempts to bring this problem under control.
So, when we think of patriotism and taking back control it is as well to ask: “whose control of what resources, and how can they benefit the many and not the few?” I’ve borrowed Labour’s slogan, but we haven’t heard much from them about these issues that are so central to the Brexit choice.
Corbyn and most UK politicians offered robust support for the newspapers when it was announced that one company was suing those involved in exposing the Paradise Papers, to find their sources. But he didn’t say that the UK has a much better chance of taking back control of offshore finance as part of the EU, than by going it alone.
NOTE: This article is the first of a series on offshore finance. Valuable discussions of these issues can be found at www.taxjustice.net.