It is time for tax justice

Posted on

I spoke at the meeting calling for tax justice in London this evening, supported by a wide range of organisations. This is what I said:

We have already heard this evening of the need for tax justice for a great many people who live in this country. I wholeheartedly agree with what has been said. But there are some people who need tax justice even more than we do. They are the people of the developing countries of this world. For them tax justice is right now a matter of life and death and no one can say that of anyone here in the UK.

But we should have absolutely no doubt that this is an issue for the UK. The reason is simple. It is our tax havens, our banks and financial services companies and our multinational enterprises that play a central role in creating tax injustice for the majority of people in this world.

It is of course very hard to prove just how much money is lost to developing countries as a result of the exploitation of tax havens. However my friend and colleague Raymond Baker, based at the Brookings Institution, has prepared estimates that the World Bank thinks are the best available. He says that illicit money flows, almost all of them through tax havens, cost the developing world between $500 billion and $800 billion a year. To put that in context, aid amounts to just over $100 billion a year.

Of those illicit flows just 3% relate to corruption of the sort that the popular press says is destroying developing countries. 30% may relate to crime like drug trafficking, but by far the largest part relates to organised tax avoidance and evasion. Worse, the corruption and criminal behaviour uses exactly the same mechanisms that the tax avoiders and evaders use.

Those mechanisms were not created by chance. The UK is a tax haven. The IMF says so. The UK has also created more tax havens than any other country on earth. Jersey, Guernsey, the Isle of Man, Gibraltar, Cayman, Bermuda, the British Virgin Islands, the list goes on. And they are all ours. If you find a home for corruption we probably made it.

All these places have one thing in common. They set out to create laws that are intended to undermine the tax system or regulation of another country. That is an act of economic warfare. We let them do that.

But of course people say it takes two to tango. And they're right. Tax havens would be useless without the financial services companies that operate within them. It is these companies that make up the offshore financial centres that supply the mechanisms used for corruption, crime, tax evasion and tax avoidance in the developing world.

You know the names of some of the people who operate in these places. I am a chartered accountant. The big four firms that dominate my profession, KPMG, PricewaterhouseCoopers, Ernst & Young and Deloitte's, operate in every major tax haven in the world and most of the minor ones. They are all in Lichtenstein, for example, and not one of them can explain why. Our well-known banks are nearly as widespread within the tax haven world.

It is these pillars of our society who are helping their clients undermine the tax revenues of the developing countries of this world. And it is these people who argue for tax cuts for their corporate clients. They suggest that VAT be charged instead. There is only one outcome: the rich get richer and the poor get poorer. We have to presume that that is what they want.

Worse, even though I have no doubt that everything these firms do is legal they do create the complex structures that mean that tax is not paid in developing countries. And by their presence in tax havens they give legitimacy to those places that helps hide the illegal exploitation that is based there.

The consequence is clear. As Ray Baker has put it, over the last 30 years or so we have created a tax system that has for the first time in recent history guaranteed that money flows from the poor to the rich and from the poorest nations to the richest nations. And I would stress once again: that is not an accident, this is by design. Tax havens are central to that design, the offshore financial centres based in those tax havens and populated by the world's largest financial services companies are the architects of this system.

A fortnight ago the Tax Justice Network submitted its evidence to the Treasury select committee that is holding hearings on offshore financial centres. 73,000 words of evidence. But you can summarise it very simply. This abuse of humanity has to end. We cannot see tax systems in the developing world undermined to the point that children die, as Christian Aid have shown they do. We cannot have a world where tax havens assist people to take five times total aid flows out of the developing world. We cannot build sustainable democratic countries free of corruption whilst we provide the mechanisms to undermine them.

What I am pleased to tell you is that we do not have to put up with this. We in the Tax Justice Network think that the problem without a solution is a statement of fact. A problem with a solution is something we can address. In our 73,000 words sent to the Treasury select committee were 18 recommendations for change that the UK could make to tackle this issue. We can offer many more internationally.

Of course the world's bankers, lawyers and accountants will tell us that what we are asking for is not possible. My answer is simple. I am a chartered accountant. I don't believe them. I know that change is possible. They don't want to change: they are winning from the world as it is. In fact, they are the problem with the world as it is.

In that case let me assure you, there is no market-based solution to this problem. If our government believes in democracy, believes in helping the developing world, believes in ending aid dependency, believes in fairness, transparency, accountability and cutting crime: if our government believes in giving tax breaks to those who need them, but not to the criminals, tax evaders and tax avoiders who don't, then our government has no choice. The time has come to break open the secrecy that allows tax havens to pursue their sordid crime on society. As I have said, this could be done. But there is one vital component that we cannot deliver alone. And that is the political will.

Working together the organisations here tonight can help build that political will. That is why I am so pleased to see you all. But our message to our politicians must be an unambiguous one: it is this. Listen to the ordinary people of the world and act as if you were one of them. If you did you would close the world's tax havens tomorrow.

Please do it.