The publication of the so-called Panama Papers is yet more evidence of a powerful and indifferent elite for whom the accumulation of personal wealth is paramount and at the expense of their fellow citizens, in many cases citizens they are meant to be providing leadership to. Evading tax is not only illegal, but it means that there is less money collected by the Exchequer for our pensioners, disabled people, the vulnerable as well as for doctors, nurses, teachers and other public servants. Aggressive tax avoidance although not technically illegal is argued to be against the spirit and intention of the law. Fundamentally, dodging paying a fair share of tax is contributing to growing inequality in this country and across the world, and tax havens are at the heart of this.
As Oxfam reported last month, the UK heads the world’s biggest financial secrecy network, spanning its Crown Dependencies and Overseas Territories and centred on the City of London. Collectively, it is estimated to account for nearly a quarter of global financial services provided to non-residents within a given jurisdiction. The UK takes prime position for all jurisdictions across the world in The Tax Justice Network’s Financial Secrecy Index. Hardly something to be proud of.
We don’t know the real figure of how much is lost in tax evasion, but the National Audit Office (NAO) has estimated a ‘tax gap’ of £34bn a year (equivalent to a third of the NHS’ annual budget) with tax fraud, which includes tax evasion, criminal activity and the hidden/grey economy, amounting to about half of this (about what we spend on Disability Living Allowance and Personal Independence Payment for disabled people each year). The HMRC’s compliance units, now merged into the Fraud Investigation Service, tackle all aspects of non-compliance and, according to the NAO, don’t record how much of the revenue they recover has come from successfully challenging tax evasion. The NAO estimates that in 2014 this was about 30%.
One of the difficulties HMRC has faced is the balance between low risk/low visibility/lower gain operations, recouping smaller sums of lost revenue often informally and relatively quickly from less complex cases (‘low hanging fruit’), and those that are high risk/high visibility/higher gain, mostly highly complex, criminal cases.
This is where political leadership comes in.
In spite of the 2013 G8 commitments of a Common Reporting Standard at a global level, the Government has been dragging their feet and obfuscating on comprehensive action to address tax evasion. £800m was identified in July’s budget for ‘non-compliance’ issues but only £266m has been allocated specifically to address tax fraud. How much will be spent on tax evasion via tax havens? How many of the 670 new staff will be acting on tax evasion associated with tax havens? Why were nearly 6,000 staff let go from HMRC between 2013 and 2015 for 670 new staff to be taken on in 2016? How has the 10% reduction in HMRC staff since 2008 affected action on tax evasion and tax havens? With the Government hosting an anti-corruption summit in May, will they commit to Oxfam’s call for unilateral action, for example, compelling Crown dependencies and Overseas Territories to produce registers of beneficial ownership and preventing Government departments and contractors from using tax havens? For many of these jurisdictions, ultimate sovereignty remains with the UK. There is absolutely no excuse for Government torpor on this issue.
The public’s anger at this flagrant abuse of power by a tiny minority and the apparent collusion of, if not participation by, some politicians has been palpable. But looking at the Government’s regressive budgets over the last 6 years, including last month’s, which as the Institute of Fiscal Studies (IFS) has shown has left people on low and middle incomes proportionately worse off as a result of tax and social security changes, should we be surprised? Projections over the next 5 years are of increasing poverty and inequality. And this is in the context of a vast accumulation of wealth by the wealthiest; in the last 15 years, the top 1% increased this by 79% (to £3.7m per person), whilst someone in the bottom 10% saw a rise of just 45% (to £1,600 per person).
The High Pay Centre data revealed that on the first Tuesday in January this year, FTSE 100 Chief Executives would have earned more in 2 days than the average UK worker did in a year. When I asked David Cameron about this on 6th January his response was derisory and misleading. When it comes down to it he talks a good talk, but can he walk the walk?
Debbie Abrahams is MP for Oldham East and Saddleworth and Shadow Minister for Disabled People