Tax Research UK

There’s a new report out on the secrecyjurisdictions.com web site. It’s entitled Key Data Report 2: Financial Services-to-GDP-ratio

The report looks at the contribution of the financial services sector to the overall economy of each secrecy jurisdiction surveyed. As we note:

A high share of financial services in the overall economic activity of a country is likely to indicate the presence of considerable political influence by the financial services industry on the government of the jurisdiction.

It is almost universally true that the more reliant a territory is upon a particular economic activity the more deferential it is likely to be to the demands of that sector. Such influence can undermine democratic decision making processes, can facilitate corruption, in the case of financial services can create a strong orientation towards the needs of those outsides the territory who would not normally be the prime concern of its government, and can be (but we stress, is not always) conducive to a criminogenic environment.

There was one major problem with the research: so opaque are many of these secrecy jurisdictions that we could not get the data. This is the list of those where we failed to secure reliable data:

Of those where we could get data this is the result:

It’s a considerable indictment of the Crown Dependencies that they are so dependent upon financial services. It is right that the UK has demanded that this change in the Foot report. Their economies are collapsing as the offshore world falls apart under the pressure for reform.

And it is essential that they and other states where this dependency is high get the support they need to break the spiral of abuse of the world’s financial system that they facilitate. The cost to the UK of doing that is going to be high. The benefit will be higher.

As I have shown, the cost of these locations to the UK might be up to £4 billion a year, the indirect cost much higher still. Giving them subsidies to reform makes straightforward economic sense, and means it will be so much easier to pick off those places that remain in the secrecy world.

Richard Murphy Economics, Foot Review, Guernsey, Isle of Man, Jersey, Secrecy jurisdictions, Tax Havens

The Jersey Evening Post has reported:

JERSEY could face a new £60 million tax ‘black hole’ by 2012.

The panel of expert economists who advise the Treasury Minister and the States have warned that a ‘structural deficit’ in States finances is emerging.

And they say that States Members have to act now to tackle spending pressures at departments as well as long-awaited pressure from the ageing population and the New Directions health strategy.

The Fiscal Policy Panel says that the deficits ‘require tough decisions on cutting spending or increasing taxation’ and that States Members have to show discipline about approving new spending.

I warned of this in 2007. They really should have heeded the warning I issued. It was timely, appropriate and right. I even provided it free of charge.

The latest report proves what I have said time and again: Jersey is heading for bankruptcy, and that as that becomes apparent the finance industry will be off like a shot. The one thing tax avoiders and evaders want most of all is strong stable government. They refuse to pay for it, of course, but they do demand it. And it is becoming very obvious that this is the one thing Jersey will not be able to deliver.

Richard Murphy Economics, Foot Review, Jersey

I thought it worth pulling out the consultation questions in the Foot Review Interim Report into British Offshore Financial Centres (note the title: it says a lot). They are:

1. What is the short to medium term outlook for the financial centres covered by this Review?

2. What are the implications of this outlook and how could downside risks be minimised?

3. Given the close links between the UK and these jurisdictions, should more be done to strengthen regulatory co-operation between the UK FSA and the local regulators?

4. In respect of retail products sold into the UK from some of the financial centres, is there a level playing field between UK suppliers and those operating from the financial centres and, if not, is change necessary?

5. Is the extent of the ‘safety net’ in place for retail consumers a material factor in the attractiveness of a financial centre as a location for financial services firms and consumers of financial services?

6. Are current resolution and intervention powers sufficient to maintain the confidence of providers of financial services in the financial centres covered by this Review and that of institutional and retail consumers of these services?

7. What action might be taken by the UK or internationally to assist in closing any gaps?

8. To what extent are the economic models in the financial centres covered by this Review reliant on being low tax jurisdictions?

9. How can the financial centres ensure that their tax models remain sustainable in the light of changing international standards and attitudes on tax evasion and avoidance?

I think the tone of these says a great deal:

1. The UK is covering risk (questions 1, 2, 3, 6)
2. The dedication to competition remains in the Treasury (4, 5)
3. The UK can intervene (3, 7)
4. Tax is only an issue in financial competitiveness (8, 9).

Of course there are questions in there on which broader concerns can be addressed. Questions 1 and 2 allow the broader picture to be addressed, although it is not what the Foot Review expects.

Questions 3 and 7 allow reform to tackle tax abuse to be demanded.

Questions 8 and 9 allow the issue of ‘tax competition’ to be addressed.

I’ll be looking at these issues over the next few weeks. I would encourage as many people as possible to make submissions.

Richard Murphy Foot Review, Secrecy jurisdictions, Tax Havens