The tipping point: the time is right for change in the way we tax

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The last few weeks have seen some extraordinary stories with regard to tax. The TUC have launched into this arena. I’m well aware I had a role in this since I authored their report on tax avoidance called The Missing Billions. That said, its reception has been broader than we could have hoped for.

The non-dom story has run, and run. And those in the know have made clear that they have no truck with the non-doms claims, or those of the firms that represent them. When Accountancy Age and Taxation magazine, who take ads from these people, call their bluff you know that the non-doms claims are both wrong, and are known to be wrong. The latest in this amazing series of rebuttals comes from one of Accountancy Age’s journalists – himself a non-dom.

Then there’s been Northern Rock. The Granite debacle was about disclosure, accountability and offshore: to put it another way, whether it is acceptable to pull the wool over people’s eyes to secure a financial advantage or not. Even some of the more cautious in the accounting profession are questioning the harm that has caused to it.

Follow that was Germany’s cracking open Liechtenstein’s bank secrecy, and the resulting furore that simply won’t go away. There is real anger out there on this issue, anger that is turning on other tax havens as well.

Finally, there’s the Tesco story covered by the Guardian (although it was previously covered in some detail also by Dispatches on Channel 4 in February 2007, coverage which seems remarkably hard to find referred to on the web). As the Guardian has itself pointed out, this conduct is commonplace, and legal, despite which it seems certain that Tescos has attempted to take action to stop the story spreading even though it has said it has a duty to minimise its tax bills.

This is an exceptional run of stories. I have not known a month like it before now. A great many journalists have talked to me about it, and have asked for my explanation. I could offer an egotistical explanation: I have had some involvement in promoting three of these stories. That would however entirely miss the point except as an explanation for why they called me. Something much more significant is happening, and I think that we have passed a tipping point; the occasion when the momentum for change becomes unstoppable.

The simply fact is that for a very long time the world has tolerated three things: tax havens, low tax for the wealthy and abusive tax planning. There has been good reason in each case. The UK, as the main promoter of tax havens around the world has tolerated tax havens because they have been the conduits that route cash to London and have allowed this country to run real trade deficits for time longer than we care to recall. The US, with its own massive trade deficit has also stood out against the crowd for this reason. Between them they have sought to kill the anti-tax haven initiatives of the OECD (which the US did in 2001) and by the EU (which the UK did with the EU Savings Tax Directive by refusing to include trusts, and with regard to the Code of Conduct by encouraging its dependencies to think that they could move their ring-fences outside the regulated area). But now Germany has signalled the way forward: enough is enough they are saying with regard to Liechtenstein. The cost of these places is too high to be tolerated, and there’s no doubt the OECD has been heavily involved in the move. I have no doubt that the language used by Barack Obama in the US and his endorsement of the Stop Tax Haven Abuse Act has considerably encouraged this action. The cost of these places now exceeds the benefits they can provide in supporting even the US. Government is going to act as a result.

People are also indicating that they have had enough of tax abuse by the wealthy. Remember, it was the Tories who wholly unexpectedly began the attack on the non-doms in the UK (I really never did expect them to pick up a campaign I had been so heavily pursuing). There is only one reason why they did this: they know people have had enough of those not paying their way. Labour has simply jumped on the bandwagon. They were right to do so even if they have got the detail wrong.

And abusive tax planning is now seen as unacceptable, so much so that Tescos would appear to be working hard to cover its tracks. But that’s just a part of the right-wing backlash: the sort that says time and again that those of us campaigning for reform do not know what we are talking about (as Alex Hawkes of Accountancy Age says is oft repeated by those seeking to discredit the likes of me) or worse, simply subjects us to abuse for not using facts when in fact we are the ones who persistently document our case that tax is not being paid. The arrogance of this counter attack which has not as yet thought it has a case to answer is, I guess, something we should have expected. The tax fiddlers have had it all their own way for a long time.

But it still does not explain why this change has happened, and I’m sure it has. My answer to that is conjectural, but I have a hunch it’s right. Those in power are not taking action on tax havens, tax abuse by the wealthy or tax planning for the fun of it, they are doing so because they believe that is what people now want. That is the change. And I’d suggest the reason is this. The middle classes have realised that they are paying more tax than they did: I have argued that here. But they’ve also realised that it is true that the wealthiest are not doing so, their tax rates are flat or falling. And companies are paying consistently less as a proportion of what they earn. That’s what I showed in the TUC report. The result is simple; the gap between the middle classes and the wealthiest is getting wider, so wide that it is now beyond the imagination of many in the middle class that they can ever bridge it. And that has removed middle class hope, here in the UK and elsewhere.

Once the middle class dreamed of making it to wealth: a relaxed life style and early, debt free retirement with a secure future for their children. Now they hope to make it to a poor retirement at a time when they might clear their mortgage, which may well be after the age of 65. They know they will be supporting their children long after the time they have left home, and they know those children cannot now buy homes without parental assistance, and even then the homes in question are nothing like those their parents aspired to. None of them can logically explain why this should be the case (and there is no logic to it). Far from dreaming of a good life, the middle class now simply hope to avoid disaster for themselves whilst despairing of their children’s future or their prospect of ever being able to see grandchildren.

At the same time those middle classes see that some are doing extraordinarily well, and their apologists in the accountancy profession, CBI and government (Digby Jones, for starters) are saying they’re indispensable. The middle classes no longer believe that. They no longer see those in the City and elsewhere as ‘terribly clever’. Northern Rock and the credit crunch have shown them to be a bunch of gambling chancers who had no real idea what was going on and who had no contingency for a down side. That’s obviously not clever; that’s very obviously dumb, but they’ve been massively well paid for it. Paid, come to that, out of the very pension funds that the middle classes see as being never able to provide for their own security.

And they’ve had enough. Their politicians have heard that they’ve had enough. And they’re acting on it. Dumb gambling is out: openness and transparency are demanded to make sure that never again do we have to fork out up to £55 billion to bail out a bank. Tax abuse is out: paying your fair way is on. Abusive tax planning through secretive offshore structures is no longer smart, it’s just the theft it actually is. The reason is that the middle classes have realised they will never be as rich as some in society now are: that is not possible. What is more, they realise those who got rich that way did so unacceptably. They want to still think they can be rich, mind you. But the way to achieve that has changed: the rich now have to be pulled back to being within range or the effort of trying to get there will not be worthwhile.

And it so happens that as this sentiment has risen there has been data and opinion available to counter the culture that tax greed is good that still pervades the CBI and the tax professions. If the Tax Justice Network has played any small part in providing that countervailing voice, I’m pleased. And that’s not pleased because of self interest, that’s pleased because this is massively good for Britain. If things carry on as they have been the middle class will quite literally give up hope: the drive will fall out of our economy and the risk to our well being will be enormous. The benefit of reining the rich back is that the middle class regain their hope, and that is essential to ensuring they continue to release their creativity. It’s that (and the fact that it remains possible for anyone with a bit of luck to become middle class in the UK) that drives our economy. That drive does not, and never has come from a small handful of reckless, gambling non-domiciled people with no allegiance to this or any other country. And that’s why tax change now is so vital, and that’s why it is being demanded.

The times have changed. Politicians have to recognise that, very quickly. The credit crunch has shattered the myth of the financial services based economy. A new one is going to have to replace it, and fair tax will be an essential component within it.