Thursday, September 30, 2010

The Rise and Rise of Britain's tax haven empire

Last year TJN's Financial Secrecy Index revealed the astonishing scale of Britain's tax haven empire. Britain - or more accurately the City of London - lies at the heart of a massive web of secrecy jurisdictions spread across the globe, ranging from Anguilla in the Caribbean to Vanuatu in the South Pacific. All were part of the formal British Empire and remain British Commonwealth members.

Others, like Hong Kong and Ireland, were part of the Empire but are no longer associated with Britain. All share similar features of Common Law and banking practice which make them formidable providers of secrecy and tax evasion services. Taken individually they appear small and insignificant: taken as a whole they account for around one half of the world market for offshore financial services.

How and why did Britain come to be such a dominant player in tax havenry? Did it arise from government policy, or was it driven more by private sector players striving to shake off the shackles of regulation imposed by Bretton Woods? And how did the various Whitehall departments react to the emergence of this tax haven empire during the crucial period of the 1960s and 70s as it suddenly mushroomed in scale?

In 2009 a TJN research team visited the Bank of England and national archives to explore files released under the 30 year rule. What we discovered was an astonishing inter-departmental battle of ideas, with Inland Revenue on one side fighting to prevent rupturing revenues, and the Bank of England and Ministry for Overseas Development on the other, both supporting tax havenry. The research team, consisting of Paul Sagar, John Christensen and Nicholas Shaxson, has written up its initial findings in a paper which it gave at a conference at Loughborough University this week.

The paper's abstract is shown below. You can download the presentation we used at Loughborough here. The paper itself will hopefully be published in due course in a book on the conference proceedings.

British Government Attitudes to British Tax Havens

An examination of Whitehall responses to the growth of tax havens in British dependent territories from 1967-75

Paul Sagar, John Christensen, Nick Shaxson

Abstract

The rise in the number and scale of Britain's offshore tax havens is indelibly linked to the post-imperial regeneration of the City of London as a global centre of financial capital. Following the emergence of the offshore Eurodollar market in London in the mid-1950s Britain actively promoted the creation of offshore industries in various satellite centres, particularly in its Crown Dependencies and Overseas Territories, which remained under a measure of British control and protection even as the formal empire collapsed. London and its satellite centres attracted major American, Canadian and European banks, multinational corporations, wealthy individuals and criminals seeking the attractions of a largely deregulated and secretive international market. All this happened under the watchful eye of British state agencies.[1]

Drawing on fresh research from public archives, this paper explores the varied and conflicting attitudes of different agencies towards the emerging British offshore network. From HM Inland Revenue (anxious to mitigate against rampant tax evasion) to the Ministry of Overseas Development (pragmatically supporting the development of tax havens in former colonial territories as a means of avoiding aid dependency) and the Bank of England (viewing tax havens as useful conduits for foreign capital flows), the emerging picture is of interdepartmental conflict and rival power-bases in Westminster and the City. Successive official enquiries in the 1960s and 70s failed to resolve these contradictory positions.

Contact author: Paul Sagar - paulrichardsagar@googlemail.com



[1] See P.J. Cain and A.G. Hopkins, British Imperialism – Crisis and Deconstruction 1914-1990, (Harlow, Essex: Longman, 1993).


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