Wednesday, April 22, 2009

Foot: A safe pair of hands

The British people are famously distrustful of intellectuals and enamoured of "experts". Endless review processes are set in motion by successive governments, but these reviews are seldom designed to encourage exploration of the big picture issues, and reviewers are carefully selected to ensure that they don't stray beyond brief into the world of ideas. Judging from the tone and content of the Progress Report issued by Michael Foot yesterday, we are about to endure yet another of these pointless reviews.

We have already drawn attention to matters of tone. Instead of approaching this review from a critical stance exploring how these tax havens interact with the rest of the global economy and Britain, Mr Foot has embarked on preparing what looks more like a regional development strategy for Britain's tax havens: with the emphasis on helping them to ride out the international pressures for tacking tax havens. How else can one explain the curious idea in the foreword of shifting the management of toxic banking assets to the OFCs (Offshore Financial Centre)? Despite all his years at the Financial Services Authority, Foot still seems unaware of the fact that many of those toxic assets accumulated offshore in the first place, hidden away in structured investment vehicles which he and his former colleagues resolutely watched with a blind eye.

Noticeably absent from this Progress Report is any suggestion that Foot and his review colleagues will come forward with serious proposals for how Britain's tax havens can plan for a post-tax haven future. Where will the Plan Bs come from and what role will the British taxpayer play in supporting some of the poorer territories in the Caribbean during a transition period?

Also absent is any indication of whether Foot proposes to ask the big questions about the role of Britain's tax havens in a world of globalised financial markets. He hints at a vague awareness of some of the issues: for example, in paragraph 2.2 (page 9) he notes

"There is also no agreement on who may gain or lose from the existence of offshore centres."

A Very Big Question!!! But he takes it nowhere. Yes, Mr Foot, there is no agreement, though we argue that these places benefit a tiny minority of global free-riders, (while also creating a globalised criminogenic environment), and they impact negatively on the interests of the vast majority of people, both in Britain and throughout the rest of the world.

Michael Foot must now address this issue very clearly: do tax havens add value in a world of globalised financial markets, or do they use beggar-thy-neighbour tactics to undermine the tax regimes of other nations and promote regulatory competition that will inevitably catalyse a race-to-the-bottom? In the section on taxation, for example, he states:

"Each centre will need to take this (TJN note: the US Stop Tax Haven Abuse Act) into account in balancing the real or perceived competitive advantages of current tax regimes with the need to generate sufficient revenue to support its domestic economy."
(para 1.10).

Now this sentence might appear innocuous, but it is laden with neo-conservative ideology, premised on the idea that tax competition is a helpful process. Let's be absolutely clear about this: tax and regulatory competition corrode democracy, harm economic efficiency, turn the entire idea of comparative advantage on its head, do not in any way serve consumer interests, shift the tax charge from capital to labour and consumers . . . we could go on. Mr Foot seems oblivious of this, and - in that very British way of blundering forwards without any guiding principles or vision - he seems on track to produce a review of the exterior seating arrangements of the Titanic.

Reading between the lines, we suspect that Foot has been too close to the City of London for far too long to be able to break free from the prevailing, now completely ruined, laissez faire ideology of the past three decades.

Nowhere does he talk about any need to make these places operationally more transparent. Nowhere does he make it clear that the British monarchy is directly responsible for these places; successive governments have failed to ensure their good government (look at unfolding events in Antigua and Turks & Caicos). This must be a major embarrassment to the Queen.

We could take these arguments much, much further, but our over-riding concern is this: Michael Foot seems neither willing nor intellectually equipped to tackle the big questions that need to be answered at this stage. We have nothing personal against him, but his track record with the FSA, his career in the City (and other tax havens), his current professional interests, in fact everything about him, mark him out as the quintessential British safe pair of hands. Another instance of a "chap" talking to other "chaps."

The perfect man to ensure that nothing useful comes from the current review.

Richard Murphy offers his own piercing critique, making a number of different points, here.


Anonymous Rob Millard said...

That Antigua, not Anguilla

11:10 am  
Anonymous Anonymous said...

err, good point Rob, sorry about that mistake (now amended)


3:03 am  

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