Not only are there questions about the morality of David Cameron’s use of offshore financial services – there is also a basic question of trust.
Trust in politics is a rare commodity. Once lost it is almost impossible to regain. The Prime Minister promised transparency both with regards to tax more generally and his own tax return. He has failed even by his own standards.
People rightly expect a government that clamps down on tax avoidance and a leader who upholds the highest standards. How can a prime minister who will not be straight with the public over such important matters regain that trust?
Whilst the Prime Minister still has questions to answer we should not lose sight of the wider issue that the Panama Papers raises and not miss this chance to focus that well used disinfectant of sunlight on the real question about how to tackle large scale global tax avoidance.
The scale of the leaks is staggering.
2.6 terabytes: more than a thousand times the size of the Encyclopaedia Britannica. 11.5m files: if each represents a mere £100,000 of tax the loss is in excess of a trillion pounds. World leaders, international sportsmen, bankers, sanctions busters, bullion robbers. And all this from merely the world’s fourth largest offshore law firm. Imagine what treasures the top three hide.
This matters because our public finances, still wobbling from the aftershocks of the financial crisis and undermined by an opposition to public investment (that owes more to ideology than sound practice) lie hollowed out by a loss of Government revenues not fully captured by official tax gap figures. HMRC itself states that its tax gap calculations for avoidance do “not include international tax arrangements.”
Tax morale, the willingness of ordinary taxpayers to play their part in funding the common infrastructure upon which we all rely, is damaged. “Why should I pay my taxes?”, ask electricians, agency nurses, junior doctors and IT contractors, “when the wealthy do not pay their.?”
And our collective ability to educate the young upon whom our future depends; to offer common human dignity to the elderly who rely on us for care; to confront the challenges posed to our humanity by the tragedy in Syria pushing through the gateways of Europe; is weakened by our failure to ensure that the wealthy pay the tax rates that parliament has decreed they shall. Cameron’s grand early rhetoric of a Big Society has paled to Osborne’s meagre gruel of shrunken public spending and starved public services.
“Taxes,” as the great American jurist Oliver Wendell Holmes observed, “are the price we pay for a civilised society.” Once, none of us would have shirked that price. Yet, as the decades have passed, the language of public discourse has come to regard taxes as bad. “Cutting people’s taxes is the right thing to do,” said the Conservatives’ 2015 manifesto. Labour must make the case that taxes enable the society we all demand.
But what can practically be done?
Clearly we need greater transparency. One step towards that would be, as Jeremy Corbyn has suggested, making registers of beneficial ownership. But the transparency delivered by a registry depends on who keeps it. And as Jolyon Maugham QC has observed, tax havens will instead come to compete for custom by delivering the appearance of transparency without its actuality. We should not assume that this alone will be nearly enough.
We also need to ensure HMRC is resourced to do its job. The money available to HMRC to spend on administration – so-called Departmental Expenditure Limits – is scheduled to fall from £3.4bn in 2015-16 to £2.9bn in 2019-20. Prior to the Panama leaks, HMRC was already complaining to the OBR that it did not have the resource to chase up almost £800m of suspected revenue from evasion.
There must also be a culture change at HMRC. Instead of rewarding wealthy tax evaders with amnesties HMRC must punish them, alongside common thieves, with prison. Instead of holding our noses and refusing to buy stolen data, we should be out in the marketplace looking for it. The cost of avoidance and evasion is too high, its consequences too profound, for us to stand, proud but misguided, on some forgotten principle.
Finally, we should give consideration to requiring a register of foreign assets, backed by substantial penalties for non-disclosure. We should not delude ourselves: it is not easy to stop avoidance and evasion. But if would be evaders and avoiders know that HMRC stands ready and able to cross-check leaked data files against its own records they will think twice.
Those at the top of the government, who have led lives of great wealth and privilege, must now demonstrate with action that they understand that government and leadership carries responsibility. Dazzling rhetoric is no longer enough.