Tuesday, November 25, 2008

The mood is changing in Britain on tax

Britain's pre-budget report yesterday, which outlines the government's medium-term economic and budgetary position, was something of a watershed from a tax justice point of view. As expected, it provided a strong element of economic stimulus: lower taxes, and more spending. But we will focus instead on two other key elements.

First, it represented a re-assertion of progressive taxation: founded on the basic principle that tax should be based on ability to pay - that is, the wealthy should pay higher rates of tax. The Financial Times called it "the most transparently redistributive budget statement of the past 30 years." Polly Toynbee in The Guardian put it like this:

"Following in Obama's footsteps, it is suddenly safe to tax the rich and spend to protect jobs. Keynes and Roosevelt are the world's spirit guides through this crisis, because in a crisis social democracy is what works. Yesterday that faith allowed Labour to shed its disguise and follow its nature in a £20bn shower of spending. Yesterday saw the Conservatives strip off their sheep's clothing too, as (opposition Conservative party shadow finance minister) George Osborne . . . merrily defending the aspirations of the wealthy. Now we can see both parties naked as nature intended, and at last comfortable in their own skins.

In poll after poll, from British Social Attitudes to the Guardian ICM, three-quarters of voters say that the income gap is too wide. The Sun tries a feeble jab at Gordon Brown for "turning his back on wealth creators" - but it lacks conviction. Odd how it has taken near calamity to shake Labour from its craven fear of the hyper-rich."


Second, the report outlined a plan to look seriously at the offshore world, in which Britain is probably more directly and deeply implicated than any other nation on earth: by virtue of the city of London being a large offshore centre in its own right, and by virtue of Britain's extraordinary and enduring links with the Crown Dependencies and Offshore Territories, a large proportion of which are tax havens. This is what the pre-budget report had to say on the matter:

"Many crown dependencies and overseas territories are significant financial centres in their own right and the financial sector plays a vital role in their economies. The Government recognises the progress made by most offshore financial centres to improve financial regulation and transparency, and tackle financial crime. However, crown dependencies and overseas territories, like all offshore financial centres, face challenges and opportunities as the world is changing. In particular, severe financial turbulence has raised questions for all jurisdictions, while there is growing international pressure to line up standards of financial regulation and meet international norms with regards to taxation.

The Government will shortly commission an independent review of British offshore financial centres; their role in the global economy; and their long-term business strategies. The review will not consider changes to the UK’s constitutional relationship. It will work with the crown dependencies and overseas territories to identify current and future opportunities, risks and mitigation strategies, including issues such as:
- financial supervision and transparency;
- fiscal arrangements;
- financial crisis management and resolution arrangements; and
- international cooperation."

This is diplomatically phrased, for it skirts around the criticism that is now increasingly coming their way (in no small measure thanks to us.) And, as TJN's senior adviser Richard Murphy said, "The Tax Justice Network will, of course seek to participate in the review." Powerful interests in Britain will oppose TJN's participation too, of course, and will seek to whitewash the tax havens.

John Whiting, tax adviser at accountants PricewaterhouseCoopers, said that plans to raise the top rate of tax to 45% from 40% was "pretty modest." As The Guardian reported:

"People will most likely grin and bear it," he said. But critics argue there is a large and growing community of tax avoiders who will do anything to deny the exchequer extra tax. That nervousness could also be detected in the Treasury yesterday after the chancellor announced a crackdown on tax havens such as Jersey and the Isle of Man, which he said were benefiting from government guarantees covering the UK financial system without making a financial contribution towards them.

Richard Murphy of Taxation Research (sic), who has advised the TUC on its campaign against corporation tax avoidance, said the chancellor would be better advised to tax the investment income of the wealthy if he wanted to tackle avoidance.

He said a 10% national insurance charge on annual unearned investment income of more than £5,000 would be harder to avoid. "I know its not the purpose of national insurance, but it would be almost impossible to avoid paying the tax because there are no reliefs on national insurance. Income tax can be manipulated and avoided, national insurance cannot. If the income is on their tax return, the national insurance must be paid."

Of course the two elements - fairer tax, and an assault on tax havens, are closely linked, and are a sign of the times. It seems likely that the British government, in this report and in the UK Chancellor's recent comments about the Isle of Man, has been influenced by events in Washington, illustrated by Barack Obama's Stop Tax Haven Abuse Act.




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