Much as expected, the Foot report into the Crown Dependencies and the Overseas Territories is disappointing. Appoint the wrong man to do the job — and Michael Foot was always the wrong man to do this job — and he has even defected to the Tories whilst undertaking it in an extraordinary show of poor etiquette — and you will get the wrong answers. How could a man who makes his living from offshore have ever done this job?
But the report, none the less seeks to delivers some small punches. It is, for example, adamant that these places must raise enough tax to bear their own risks. I agree, of course. It is only too obvious that they have delivered tax haven facilities on the basis of subsidy from the UK, direct or indirect. The UK subsidy of £230 million VAT to the Isle of Man each year was just the most obvious example — and at least that has been reduced now, albeit I think a subsidy of maybe £90 million a year remains. The demand that each place raise more tax is reasonable and appropriate. The fact that sales taxes are promoted shows that Foot, true to his Tory colours, understands nothing about social justice. This makes the local population of these places, many of whom are really not very well off, pay the price of tax haven activity for the world’s rich.
And the fact that this is the centrepiece of the report also shows a poverty of thinking on Foot’s part. He may have noticed that some of the world's largest banks have failed of late — despite claims to have been profitable. That was because they were massively under-capitalised to withstand the risks inherent within their business models. Raising some VAT or its equivalent in Guernsey and other such places is the equivalent of what a small rights issue did for RBS in 2008 — it utterly failed to correct the inherent flaw within its balance sheet. The reality is that these places promote risk which it is way beyond their capacity to manage or bail out. In which case this focus is completely wrong. The only way to manage financial risk in these places is to dramatically curtail the risk they deliberately, provocatively and inappropriately underwrite without capacity. And that would have required their financial services sectors to be radically curtailed. Foot is not saying they should do that. And therein lies the flaw in his report. It has missed the real issue: Foot thinks the risk is in the weakness in government revenues in these places, and there’s no doubt it’s true. But nothing they could raise could in any way help manage they risks they face. So whilst the proposals marginally reduce UK government risk they do nothing for the real issue.
The same is true of his focus on improved regulation. I think Foot realises the regulations with which he urges enhanced compliance were drawn up by bankers to let offshore happen beneath a veneer of respectability whilst permitting the flow of funds to continue — cutting out just the smallest and most egregious part of the business. He knows because he was part of the elite — in the UK at the Financial Services Authority and offshore in various appointments — that made sure the system was designed to deliver constructive non-compliance. He was also one of those most responsible for setting up the system of bank regulation that has so spectacularly failed. That is the veneer of respectability that allows the abuse to continue. And just as the rules he delivered at the FSA were useless — so are the offshore rules he is now promoting. They were never designed to really regulate financial abuse, were never intended to stop tax abuse, were never intended to stop the creation of asymmetric information that encourages market abuse, and were never intended to curtail this abuse in the social interest. So encouraging compliance with them now is absurd: the only thing he should have been doing is to demand automatic information exchange on the identity and income of all users of offshore tax havens, the introduction of country-by-country reporting and massive increases in the transparency of offshore structures so that the accounts, beneficial ownership and true nature of the identity of management of all offshore entities (including those in London, Delaware, and beyond) be available on public record, freely accessible and subject to massive penalty (yes, massive — including forfeiture and more) if inappropriately recorded. There are only at best very tentative steps in this direction.
Then we would have seen change. Instead we have a weak apology for a report that is going to do little, but allow it to be claimed the issue has been tackled — especially by George Osborne, who has every reason to promote the abuse no doubt beloved by many of his friends. I never had high hopes for this report. And even then I have been underwhelmed. A weak man, born to be an apologist, has delivered a weak report. It was what I expected but after a period of real progress this is, without doubt, a set back.
The moral: never again appoint insiders to undertake reviews. It does not work. Strong outsiders do work. Just look at the contrast with the Nimrod review to see what I mean.
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Richard
So are you saying that your estimate of the UK tax gap through tax avoidance (was it £12b) is far more accurate than Foot’s/Deloitte’s estimate of £2b and, if so, what extra resources do you have that they didn’t have ? £10bn is a massive difference so must be surely explainable.
You state that Deloittes must have a conflict of interests with their figures and report, but do you not also have a conflict of interest ? And surely Foot was eminently qualified…previously an offshore and onshore regulator he knows exactly what REALLY goes on in the Crown Dependencies and Overseas Territories.
I think that this posting indicates why, despite the cordial natures of our exchanges on this blog, I have something of a problem with you. Since the report was commissioned, I considered it inevitable that if Foot failed to conclude exactly what the Left wanted — presumably, that the Crown Dependencies and Overseas Territories are evil places whose financial services sectors should be destroyed by any means, legal or illegal — then Foot would be openly vilified and ridiculed by those commentators.
So it has proved. Foot, is apparently, “true to his Tory colours”, ignorant of “social justice”, subject to a “poverty of thinking”, “part of the elite”, creator of a “veneer of respectability”, “a weak man” and “born to be an apologist”.
Assuredly, it’s not the most inspiring document. Having concluded that the Crown Dependencies and Overseas Territories must collect enough tax to cover their expenditure and ensure compliance with evolving international legislation, Foot is now well placed (to quote a favourite line from the immortal “Fawlty Towers”) to go on “Mastermind” with the specialist subject “the bleeding obvious”.
Yet, really, what was the alternative? A report penned by someone with no experience of offshore? A shortlist of candidates for the task confined to those with Left-wing political views and inbuilt dislike of international finance centres? Anodyne as it is, the report is at least reasonably objective, correctly pointing out that the Crown Dependencies funnel tens of billions of pounds into the City of London (that would otherwise very likely be captured by emerging Far East financial centres — my observation, not Foot’s).
Really, it’s underlying narrative — that the Crown Dependencies and Overseas Territories should not rely on Britain for financial assistance if things turn ugly — confirms my impression that Britain and the remnants of its former Empire are decoupling. This could, I feel, deliver advantages for both parties.
Rupert
If a postman was selected to write a report on the Royal Mail nosedive into history, would anyone object?
Or if Shipman had been investigated by that Jersey nurse that is embarrassing the government there?
And why do you expect that he knows REALLY what is happening? Is it because you agree with the accountancy firms, you know the ones, the ones that charge exorbitant fees for being cowboys. How much has your company paid for ‘professional services’? I imagine there is much sighing. These people, along with OFC law firms, are ultimately responsible. Yet, even though the large part of your defence against the claims of opaquenees, CDD and the ‘spirit in which business is acquired and regarded’ reasonably based on the one assertion you have, that you actually work within the system and so are qualified, have been proved factually incorrect. If not disingenuous.
Or untruthful?
Weren’t the Funds businesses in Dubai recently?
Are we desperate for business?
I have an interesting example involving political bias, PEPs, and ‘acceptibility’ that I got involved with.
So why should we trust your judgement?
Richard, it seems to me that you’ll never be happy until the CDs and OTs are relegated to county councils of England, and the only economy we have is doing traditional dances for wealthy English tourists.
You also don’t seem to have a problem with the UK being the biggest offshore jurisdiction – happy to suck up the world’s wealth and not share it with smaller jurisdictions.
As for the Report’s estimate that the UK has lost £2bn in tax revenues to the overseas jurisdictions, and presuming that the Govt will want some of that back, then the recent raid on the Isle of Man to the tune of £140m and the theft by the UK Govt of £550m of Kaupthing depositors’ money means the IOM has already returned 34.5% of the total. So can you ask the Govt to pick on someone else for a change? 🙂
£2B not including the now known unknowns, as it was an unknown unknown when started.
I only looked in detail at my two bugbears, transparency and this claim of ‘knowing exactly who we’re dealing with’. Both found unsatisfactory everywhere, and apart fron the obvious ones, the most scathing, I think in language, was the transparency issue.
Dark matter is not qualifiable. It is risky.
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