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Excellent study of corporate criminality and government connivance
on 7 August 2013
Former tax inspector Richard Brooks has written a superb book on how successive governments have turned Britain into a tax haven. The City of London provides unrivalled tax-avoidance services.
In 1979, Thatcher's first act was to abolish exchange controls on capital. Brooks points out, "By limiting offshore movements of funds, exchange controls had prevented companies simply moving large amounts of capital into the world's tax havens where it could turn a quick tax-free buck."
In the late 1990s, the Labour government removed the tax on dividends. In 2000 it cut capital gains tax from 40 per cent to 10. It exempted from tax those profits returned to the UK from overseas subsidiaries. Tax reduction is central to most private equity buyouts, like Boots.
Gordon Brown told the 1996 Labour Party Conference, "A Labour Chancellor will not permit tax reliefs to millionaires in tax havens." There is now an estimated $2.7 trillion hiding in tax havens. In 2002 Brown extended the 10 per cent top rate capital gains tax to gains made after just two years not ten.
He promised the 2005 CBI conference `not just a light touch, but a limited touch ... [to] the regulation of financial services and indeed to the administration of tax'. One of Brown's advisers was Sir Ronald Cohen, founder of the Apax private equity group. Chris Sanger, a partner at Deloitte which boasts of its `global, integrated and innovative Audit, Tax, Consulting and Corporate Finance services', spent four years as special adviser to Brown on tax. The Labour government foolishly merged the Inland Revenue with Customs and Excise.
In 2007, Darling agreed an 18 per cent capital gains tax rate; the top income tax rate is 50 per cent. The coalition has since lifted the rate to 28 per cent, supposedly to carry out the LibDem promise to tax capital gains `at rates similar or close to those applied to income'.
PricewaterhouseCoopers, which boasts that it is `comfortable talking about business taxes, either in the UK or overseas', briefed the Labour `opposition' team on the 2011 and 2012 Finance Bills.
When the ConDem government proposed exempting from tax companies' foreign branches only if they were in countries with normal tax rates, business said it wanted its tax haven branches exempt too, so in 2011 this was exactly what they got. The government even allows tax breaks for the costs of funding these offshore set-ups.
Vodafone's 2010 deal with the top UK tax inspector David Hartnett (who now works for Deloitte), cost the taxpayer at least £6 billion. Hartnett also excused Goldman Sachs an interest charge of £20 million, which even he later admitted was a `mistake'. One senior official admitted, "We used to have a priority to collect tax, now we have a priority to have a good relationship." Just after that deal, Brown brought Vodafone's deputy tax director on to the Treasury's `monetary assets working group'. So a firm that was avoiding vast amounts of tax could shape the rules on tax avoidance. `Loopholes' are not unintended.
Google generated £11.8 billion of revenue from the UK between 2006 and 2011, and somehow paid just £16 million in corporation tax. In 2010, Microsoft employed 2,800 British staff and reported profits of £76 million in Britain; its tax charge was just £20 million. Its Irish company employed 700 staff, who apparently made £1.2 billion profits, on which it paid £130 million tax. So its Irish staff were, apparently, 75 times more productive than their British colleagues.
Barclays, aided by Slaughter & May and PricewaterhouseCoopers, set up more than 300 tax haven subsidiary companies.
Share schemes for bonuses are more valuable to non-dom sports players, who can leave them offshore and not suffer even the 25 per cent tax Brits had to pay. So the same wage for a foreign player costs a football club far less than it does a British one. So talented British youngsters struggle to reach the top level, as does the national team.
Colin Pritchard and Mark Wallace concluded in 2011, "In cost-effective terms, i.e. economic input versus clinical output, the USA healthcare system was one of the least cost-effective in reducing mortality rates whereas the UK was one of the most cost-effective over the period."
Benefit frauds, which cost £1 billion a year, were prosecuted 9,000 times in 2009-10. Evasions of direct taxes, estimated at £5.5 billion a year, are prosecuted about 30 times a year. Britain's 54 billionaires, mostly non-doms, paid in 2005 tax of £15 million on combined fortunes of £126 billion.
The EU embraces tax havens - Britain, Ireland, the Netherlands and Luxemburg. The European Court of Justice endorses tax dodging. The British tax agreement with Switzerland enshrines tax haven secrecy and decriminalises offshore tax fraud.
In 2010, business secretary Vince Cable promised to rein in overseas takeovers that erode our industrial base, but nothing came of this promise. The non-dom tax break in private equity hands acts as a kind of reverse protectionism favouring overseas control.
Osborne cut corporation tax rates to 21 per cent. He announced a tax exemption for companies' tax haven branches, and axed many offshore tax-avoidance `controlled foreign companies' laws. This would cut the largest companies' tax bills by about £7 billion over four years. It was paid for in part by cutting the tax allowances for investment in new plant and machinery.
By 2012, more than 200 Private Finance Initiative companies were partly owned offshore, more than 100 of them majority-owned in tax havens, and 70 of them running health care projects. 168 state schools are at least partly owned offshore. The government feeds these PFI firms contracts that will cost public service budgets more than £250 billion, and allows them to use public services as tax avoidance schemes.
Tax avoidance worsens all our economic problems: it adds to the concentration of capital, by forcing small and medium firms out of business or into mergers; it increases debts, and adds to the exploitation of poor countries. Developing countries lose possibly $280 billion a year in tax avoidance and evasion, when total worldwide aid per year is $100 billion.
We're all in it together, subsidising private equity firms and hedge funds. Britain is a corporate tax haven, aiding corporations and criminals alike, indeed it is increasingly hard to tell the difference. The author concludes that we should scrap archaic non-dom status and have a tax system based on residence alone.