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The culture of tax avoidance that shames Britain

The British government is consulting all and sundry on the nature of Britishness. A “statement of British values” will somehow emerge, likely to be both self-aggrandising and absurd. “British” qualities are usually cited as tolerance, fair play, decency, honesty, and a polite reticence about these shining virtues — Enid Blyton values of an imaginary 1950s, redolent of cricket and tea.

This exercise in self-delusion will be entertaining, if embarrassing. For a hard reality check, it might be a wiser to cross the Channel and ask some of Britain’s EU neighbours what they think of Britons. Their Finance Ministries might use other 1950s words — branding Britons spivs, swindlers, cheats, and cads.

Britishers boast with great arrogance of the pre-eminence of their world-beating City of London, with its probity and professionalism — but others call it a world-beating haven for global world-cheating. Prime Minister Gordon Brown boasted in his Mansion House speech of “our competitive tax environment,” while others see it as the playground for global kleptocracy.

But the Lichtenstein scandal has blown the top off the extraordinary world of tax havens, as country after country finds millions salted away from tax authorities in that bizarre principality’s secret vaults. It has given the Organisation for Economic Cooperation and Development (OECD) renewed determination to put a stop to permitting these banks a secrecy that hides grand larceny.

Ever since the Big Bang Loadsamoney 1980s, a British culture of excess has welcomed the wealthy with no questions asked. We have embraced a politics of taxation where all tax is a burden and all tax avoidance a duty. Unlike most of the EU, the government never speaks the social democratic language of fair taxes as a quintessential part of the good society. The outcry over making non-doms pay a token sum suggests tax avoidance is becoming a new British human right. Where are the massed ranks of Labour Ministers rousing the wrath of middle Englanders who have no choice but to have tax taken out of their wages at source (PAYE — pay as you earn)?

The Guardian’s revelation of U.K. supermarket giant Tesco’s Cayman Islands tax arrangements reminds the world that our tax lawyers are world-beating at “tax-efficiency.” When such an emblematic company takes such steps, it speaks volumes about the national tax avoidance culture. Check out the recent report “The Missing Billions” from tax expert Richard Murphy, for the UK’s Trade Union Congress, who identified £25 billion of tax lost from the exchequer. He lists major companies whose tax payments do not begin to reflect the size of business and profits they seem to command in Britain.

Since Tesco has murmured to other newspapers that it may sue The Guardian, to warn others against following our story let us stress that these low-tax paying habits are all very, very legal, all arranged by highly paid lawyers from highly respected world-beating City law firms. They set the seal on avoidance not just as OK, but as a good or even as a necessary business practice.

Inconvenient truths about Mr. Brown’s favourable tax treatment of the rich now bubble to the surface. Capital gains tax was finally aligned with income tax by Nigel Lawson, U.K. Finance Minister, in the 1980s at 40 per cent to make sure it made no difference whether people described their earnings as capital gains or income. So why did Mr. Brown cut capital gains tax to 10 per cent at the urging of the private equity industry? The BBC’s Robert Peston raises this question in his new book. Now CGT is lifted to just 18 per cent to the fury of those who call this an “80 per cent rise”: but it means anyone with buy-to-lets, second homes or private equity bonanzas still pays less than their cleaners on 31 per cent PAYE and national insurance.

More questions: non-doms will pay a flat £30,000 after seven years. The Tories, who first dared propose it, do better, charging them £25,000 from day one. But the Lib Dems do best, taxing them their full fair share as British residents after seven years, declaring all earnings here or abroad, all bank accounts and trusts.

Britain has a bad international record — but other governments are getting tough. Money lost through corruption far exceeds aid for poor countries: it needs international transparency to deny safe hiding places for cash from bribes, drugs and dictators’ stolen fortunes. Protecting offshore trust secrecy to keep Britain’s non-doms happy also protects the world’s brigands and killers. — ©Guardian Newspapers Limited, 2008

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