Ed Miliband is calling for an end to UK tax havens, starting with the Channel Islands and Isle of Man. Under current rules, British residents are able to keep money in offshore accounts where it can go unnoticed by HM Revenue and Customs. Labour said the government should "start with diplomacy" to try to encourage tax havens to reform. But if that fails, the opposition said ministers should threaten to put them on an international blacklist. (1)
But shouldn't the UK be under a blacklist status too? The book "Treasure Islands" exposes how the City of London functions as a tax haven within Britain for any countries outside - Britain has a tax haven at the heart of
its financial centre.
The City's "elsewhere" status in Britain stems from a simple formula: over centuries, sovereigns and governments have sought City loans, and in exchange the City has extracted privileges and freedoms from rules and laws to which the rest of Britain must submit. The City does have a noble tradition of standing up for citizens' freedoms against despotic sovereigns, but this has morphed into freedom for money.
So, the corporation has two main claims to being a tax haven: first, as a semi-alien entity, floating partly free from Britain (just as the Cayman Islands are), and second, as the hub of a global network of tax havens sucking up offshore trillions from around the world and sending it, or the business of handling it, to London. These are possibly the biggest reasons for the City's wealth and power - yet how many Britons understand this? (2)
The fear of a Tobin tax sending millions away from the City of London - recently raised with the European meeting - led to David Cameron using a veto to prevent that. It wasn't Jersey or Guernsey that he was protecting; the bottom line for the UK, as we have seen historically with regard to unfair tax competition, is that they are quite prepared to sacrifice the Channel Islands if required, but they are not prepared to give up their own internal tax haven.
To be true, the City does channel a flow of funds from the Channel Islands, but it also cheerfully deals with flows from Mauritius in the Indian Ocean, Hong Kong and the Bahamas. How will Ed Milliband deal with those? Will he blacklist the Chinese and face down any economic reprisals they may take? Since the OECD itself had trouble getting Hong Kong to sign up to the much more limited Tax Information Exchange Agreements, I think it is unlikely that he'd risk a conflict, and face embargoes from trading opportunities within China.
So what is it all about? Ed Miliband's popularity has slumped and he badly needs some kind of credibility if he is to stay on as leader of the labour party, and be potentially election material. The simplest way of getting a good lot of publicity and not to get much in the way of bad feedback is to drum up support by beating a populist drum, and closing down the Channel Islands as tax havens as soon as possible is a good way of getting that cheap publicity.
Mr Milliband says the EU is acting too slowly, but the EU has problems with moving everyone forward at the same time, to ensure that tax haven activities do not simply re-locate elsewhere in the world. Part of the problem is that within the EU - in Austria and Belgium and Ireland - as well as with Britain - there are tax haven style activities going on, nameplate companies, protected secret bank accounts. So there are internal problems with putting their own house in order. And outside the EU are havens like Hong Kong, or indeed the United States of America, where Delaware, in particularly, welcomes overseas companies under a veil of secrecy.
And of course, there is a little matter of the Labour Party itself:
Tycoon Andrew Rosenfeld, who has made an estimated £100 million from property investments, registered his international network of businesses in the British Virgin Islands – using a trust company that boasts that it 'makes full use of the legal and tax advantages offered by different jurisdictions'. Mr Rosenfeld was appointed by the Labour leader last year to mastermind the party's General Election strategy, shortly after the businessman made a £1 million donation to Labour.
None of these matters come to light in his statement, which suggests that he is basically a poseur hoping for cheap headline grabbing publicity, rather than a serious attempt at improving global matters. Putting someone else's house in order and ignoring your own problems is the mark of a desperate man. He's got it the cheap headline, of course - the BBC has the story on its website. But in the long term he may find that a too hasty attempt to garner cheap publicity will backfire, when his personal ratings slump again as the story becomes the stuff for wrapping up fish and chips, and a leadership challenge comes from someone with rather more integrity.
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