Why Britain is a world leader in financial secrecy

Between $21-32trn of private wealth is kept in tax havens, and Britain is at the very centre of a global financial system that allows the wealthy to avoid tax.

According to the Tax Justice Network, around $21-32 trn of private financial wealth is located in secret tax jurisdictions around the world, where it is either untaxed or lightly taxed. It’s estimated that since the 1970s, this has cost African countries over $1trn, dwarfing the continent’s external debts of $190bn.

Today the Tax Justice Network has published its biannual secrecy index, which ranks countries on indicators like banking secrecy, anti-money laundering regulation, the kinds of company and trust structures permitted and whether their beneficial owners are made public. The three highest ranking countries in terms of financial secrecy are Switzerland, Luxembourg and Hong Kong.

What is noteworthy is how many British island dependencies and overseas territories – where laws must be approved in London and the Queen is the head of state – rank in the top 50 most secret tax jurisdictions. The UK itself comes in as number 21, while the Cayman Islands is in at number 4, Jersey at number 9, Bermuda (14), Guernsey (15), British Virgin Islands (20), Isle of Man (34), Gibraltar (49).

This is all the more interesting when you consider that David Cameron decided to make cracking down on tax avoidance and promoting tax transparency a key issue at G20 this year. In 2011 Nicholas Shaxson, who is a consultant for the Tax Justice Network, wrote the influential book, Treasure Islands, which argued that London is not only the creator of the modern offshore banking system, but is also one of the worst offenders. Lawyers and tax advisers based in the City manage money coming in from the world’s richest and then redirect it to low-cost satellites, from Jersey to Gibraltar.

John Christensen, the director of the Tax Justice Network has written to the Queen, drawing her attention to these findings and arguing that, “the secrecy facilities provided by these jurisdictions stains the good name of Britain in the international arena.”

Clamping down on banking secrecy will make it harder for corrupt world leaders to embezzle public funds, for criminals to launder money and for the world’s wealthiest to avoid taxes – it would however leave a lot of the smart lawyers and tax advisers in the City short of work. Most lawyers would strongly disagree with my conclusion – they are not allowed to help people break the law, and have to carry out special checks on those who are euphemistically referred to as “politically exposed persons”.

But I remember one City lawyer telling me that every year she was flown out to Switzerland by a mystery client, whose identity they didn’t know, to check over her client’s tax affairs. When they arrived in Switzerland, they’d be left in a room with their client’s financial documents. They weren’t allowed to take notes, photocopy documents or remove anything from the room. Operating in these conditions, how can a lawyer possibly be certain that they are not ironing out tax efficiencies for a Middle Eastern despot or a mafia don?

There have been tentative moves towards greater tax transparency – the Liechtenstein Disclosure Facility offers an amnesty of sorts for those who want to come clean on their tax liabilities on their money kept in Liechtenstein, for instance, and Switzerland has made a few concessions on banking secrecy. But these are only tentative moves. As one of the world’s leading financial centres, Britain does have the power to push forward moves towards greater transparency. But this requires real political commitment, and that's still lacking.

Protestors dressed as a businessman do a 'high five' on a protest site named by participants as the 'Isle of Shady Tax Haven' in London on June 14, 2013. Photo:Getty.

Sophie McBain is a freelance writer based in Cairo. She was previously an assistant editor at the New Statesman.

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Do you see yourself as British or English? The answer could help define modern politics

The rise of English identity has left a glaring space in politics for an English nationalist party. Who is going to fill it?

Political scientists call it the “Moreno question”. In the 1980s, the Spanish academic Luis Moreno Fernández came up with a test for identity, which was originally applied to gauge interest in Catalan independence. In its English incarnation, it asks voters to grade themselves from “I feel more British than English” to “I feel more English than British”. Unsurprisingly, Ukip does best among those who describe themselves as “English, not British”, while Labour’s vote rises the more people see themselves as British. In the biggest group – the 47 per cent who see themselves as equally English and British – the Tories lead.

The Moreno question helps us make sense of three interlinking trends in modern politics. First, the stark fact that in the 2015 election, a different party won in each nation of the United Kingdom: Labour in Wales, the SNP in Scotland, the Tories in England and the Democratic Unionist Party in Northern Ireland. Second, Ukip’s lack of success north of the border: the Herald reported in July that Ukip’s only elected representative in the country, David Coburn MEP, had been forced to take on the role of treasurer at his local branch in Fife because it has so few members. Third, Labour’s declining performance in its historic northern heartlands. Many voters there want a party with a distinctively English flavour and don’t feel that Labour is it.

Devolution has had many unexpected consequences, but the rise of an English identity is one of the least explored. Because of its demographic dominance, mainstream politicians have long argued that it would be unfair to give England its own parliament. Labour is particularly resistant to the idea because it would magnify the Conservatives’ power. As it is, the principle of “English votes for English laws” will exclude the SNP and Plaid Cymru from the grand committee-stage hearings on grammar schools, because education is a devolved matter.

However, the last general election showed that there’s a problem with English voters feeling ignored. In Worcester, the Tory MP Robin Walker told me in April 2015 that arguments about the SNP holding Labour to ransom cut through on the doorstep. “There is a real concern if [voters] are saying, ‘The proceeds of the mansion tax are all going to go on nurses in Scotland. That doesn’t help us,’” he said. Many English voters felt that the SNP would be a successful lobby group at Westminster for Scotland’s interests. Where was their equivalent?

For John Denham, the former Labour MP who now leads the Centre for English Identity and Politics at the University of Winchester, the same dynamic applied this summer in the EU referendum campaign. “Scotland got ‘Scotland Stronger in Europe’,” he tells me. “England had to put up with ‘Britain Stronger in Europe’. That was an elite campaign run by people who think Britain and England are the same thing.”

Once again, the Moreno question helps us understand a fundamental divide among English voters. Denham says that 80 per cent of people who defined themselves as “English only” voted Leave, while 80 per cent of those who called themselves “British only” voted Remain.

Denham thinks that this presents an enormous challenge for Labour in northern seats where Ukip is in second place, given that its intellectuals and leading politicians feel so squeamish about Englishness. “If Labour continues as a cosmopolitan, liberal party that doesn’t want anything to do with the politics of identity,” he warns, “it won’t reach those voters.”

Other politicians worry that if Labour doesn’t occupy this space, another party will. “As nationalists go, the SNP is pretty good,” a senior left-wing politician told me recently. “An English nationalist party could be something altogether more nasty.”

In this light, the election of Diane James as the leader of Ukip looks like a rare stroke of luck for Labour. She is a southerner, educated at Rochester Grammar School, and an MEP for south-east England. Although she is polished and professional – albeit prone to outbursts of admiration for Vladimir Putin – she seems unlikely to appeal on an emotional level to working-class white voters in the north, where the greatest potential for an English nationalist party lies. Thanks to Ukip’s Caligulan internal politics, the deputy leader, Paul Nuttall (from Bootle), did not stand and the charismatic Steven Woolfe (from Burnage) was excluded from the race after the party’s executive committee ruled that he had submitted his nomination papers 17 minutes after the deadline. (Another potential candidate, Suzanne Evans, was suspended by the party, and pretty much everyone else in Ukip seems to hate its only MP, Douglas Carswell.)

If not Labour, or Ukip, perhaps the Conservatives? Theresa May’s rebranding of the party, complete with articles on bringing back grammar schools in the Daily Mail, shows that she is pitching for Ukip-leaners. “In terms of language and biography, she has a better understanding of that struggling, socially conservative, English nationalist voter than Cameron did,” says Robert Ford, a professor of political science at Manchester University and co-author of Revolt on the Right. He believes that any party that thinks a simple economic message can sway these voters is underestimating the “emotive” nature of identity-based politics. “It’s no use going to Sunderland and saying, ‘We’re going to nationalise the trains,’ and thinking, ‘They’ll come back to us.’”

There is another option. A new party could be born, perhaps even out of the ashes of post-referendum Ukip: Arron Banks, its mega-donor, has said that he fancies the idea. With the right leader, nationalist sentiment could spread like wildfire among the “English, not British”. And, as Nigel Farage has shown, you don’t need to get elected to Westminster to have an effect.

Helen Lewis is deputy editor of the New Statesman. She has presented BBC Radio 4’s Week in Westminster and is a regular panellist on BBC1’s Sunday Politics.

This article first appeared in the 22 September 2016 issue of the New Statesman, The New Times