Dame Margaret Hodge called an adjournment debate on tax abuse and the Isle of Man in the House of Commons yesterday. Her closing comments were of particular interest to me, referring as they do to suggestions first made on this blog on Monday:
Back to the Isle of Man, one might ask how this small country can afford to raise enough in taxes to run its public services without any contribution from corporation tax. The answer is simple: we subsidise it. It is our tax money that substitutes for the tax income that it could receive from charging businesses properly. It is our money that enables it to be a tax haven. Our Government do not just tolerate tax havens. They are using our taxes to enable the Isle of Man to operate as a tax haven. As with all these things, the Government refuse to be transparent, so let me try to unravel this.
Because we and the Isle of Man share a border, we also share what is called a common purse for VAT and other import duties. All VAT and import duties collected by the Isle of Man are passed to Her Majesty's Revenue and Customs, and then the Exchequer gives the Isle of Man a sum on the basis of a formula that is supposed to reflect how much VAT has been generated from the economic activity that takes place there. In 2016, the then Chief Secretary to the Treasury renegotiated the formula and agreed a generous annual uplift of way above the level of inflation.
We give the Isle of Man more than £300 million a year, which is just under one third of its entire budget for public expenditure. That figure is set to rise to £340 million by 2019. This sum appears to have nothing to do with what is happening in the Isle of Man's real economy, where employment is down and the population is declining. It has everything to do with what seems to be a deliberate policy intention of our Government to subsidise the Isle of Man and thus promote and support it as a tax haven. The Treasury has refused to publish the details of the formula on which our payment is based. I ask the Minister to release those details so that we can see how the sum is determined.
What this shows is that we are not innocent bystanders who simply put up with the utterly unacceptable activities in tax havens that have been exposed in the Paradise papers. We actively support and enable tax havens to function and exist. Without our subsidy, the Isle of Man could not afford to have a zero rate of corporation tax and could not function as a tax haven. The Isle of Man is well and truly a UK tax haven. Far from being at the head of the fight against tax avoidance and evasion, and money laundering, we are at the heart of the evil conspiracy involving advisers, the super-rich, global corporations and Governments. We are aiding and abetting the very few wealthiest and most powerful in our society to keep their wealth secret and avoid paying their fair share of tax.
The Minister will try to claim that his Government have achieved a lot to tackle avoidance and evasion. He might try to say how much better his Government have been than the previous Labour Government. I have never defended the record of the Labour Government in this area, but his Government's record is also shameful. It is not what is done that really matters, but what is left undone.
I urge the Minister to tear down the shroud of secrecy and force all our tax havens to have public registers of beneficial ownership. This simple ask for ​better transparency about who owns what and where is utterly central to our desire to expose avoidance and hence stamp on it. I ask him to toughen up our regulatory bodies and to hound the Bonos, the Mrs Brown's Boys and the Lewis Hamiltons of this world through the courts to make sure that they pay their proper dues. I ask the Minister to introduce legislation that will ensure that the advisers who dream up these tax avoidance wheezes are held to account for what they do, and held responsible and punished when schemes that they invent are found to be unlawful. Those three actions would go a long way to ensuring we have a responsible tax system that is fair to us all. I look forward to his response.
As has often been the case, I am on the side of Margaret Hodge on this one.
And I am grateful to her for giving such an airing to my arguments.
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What a Gal!
Or how about ‘There ain’t nothing like a Dame!’.
Seriously though Hodge’s statement really cuts through what is happening and it is great to hear someone in the commons talking like this.
Marco is right – the pressure needs to be continued to be applied.
I will keep at it
I hope this is a case of start with the IoM then work on the next and the next.
Here is an excellent piece by Gabriel Zucman that quantifies the magnitude of the problem.
https://www.theguardian.com/commentisfree/2017/nov/08/tax-havens-dodging-theft-multinationals-avoiding-tax
Are the EU making any progress on their members?
I note he thinks the loss is bigger than my extrapolation suggests
The task now, I suppose, is to keep the pressure on.
Can I quote directly from this article when writing to my MP about this? Many Thanks. M
Of course
Not sure where Margaret Hodge is getting her figures about the Isle of Man population and employment levels.
As I understand it the Isle of Man population figure is difficult to estimate outside a census, between 2006 and 2011 the population increased by around 4,000, then fell by about 1,200 between 2011 and 2016. The Isle of Man Government estimates suggest it grew by a further 200 in 2016/17
With regard to employment as I understand it the “unemployment” figure is near record lows, so I am not sure where she gets a figure suggesting that employment is falling?
Minor issues, but I wouldn’t be using them to try to question the VAT sharing, it doesn’t seem like a very good way of coming to the conclusion it is wrong.
[…] Read here […]
The formula for allocating VAT back to the IOM under the common purse agreement was returning over 400 million pounds a year to us up until ten years ago when Alister Darling cut it back to 250 million
Since the 1980s the Manx Government used this income to expand and improve the Island’s infrastructure and encouraged it’s departments to employ more staff as a way of distributing the money through the economy
The sudden reduction in the VAT income, combined with the relocation of many banks etc. to more secretive jurisdictions led to the imposing of austerity cuts on the Island’s population. Roads go unrepaired, hospital wards are shut, utility prices increase, etc.
Most of us here on the Island would have no idea how this sum was arrived at and many more would be unaware that this was how the system worked. We pay heavily for goods & services, housing is expensive and the cost of transport on and off the Island adds an additional burden
If you earn over 40,000 a year then you are better off that you would be in the UK, less than that and any tax advantages are offset by the high cost of living.
We are not all golf-playing retired Tories over here, just bear that in mind
I do
Vote in a government that is not abusve then
You have the power to do that
David, I think your last paragraph proves what Richard has been saying. The highest earning are better off than the rest of the UK, everyone else is worse off. The richest are subsidised by everybody else. Nice.
And, as the Paradise Papers have proved, the IoM enables this kind of inequality on a global scale too.
Thank you for clarifying the situation, I had no idea that such a simple remedy was at hand
I shall vote in a new, non-abusive administration at the next election
What about the fact that Margaret Hodge is the shareholder in a family steel business headquartered in Jersey, I’m sure that the business isn’t there because Jersey is a good place to have a steelworks !!
She has addressed this issue so many times….
As I have
And it’s boring
Would you consider the same applies to Jersey? What about Guernsey which does not have VAT?
Jersey and Guernsey do not VAT share so this scheme does not apply to them
Are they still tax havens? Sure as heck they are
Regarding the claim that the Isle of Man is receiving 70 million a year more than it should from the Common Purse Agreement
Has it taken into account the amount of VAT paid by Manx people directly to the UK Treasury ?
The major UK retailers over here, Tesco, M&S, Next etc do not pay their VAT into the Manx Treasury. It goes direct to the UK as does all VAT on goods bought online from the UK
Of course the amount actually paid is taken into account
It is paid into the Common Purse
And then it’s all reallocated
I think David is attempting to say that VAT is due where the consumer is based, but GDP allocates the economic activity to the location of the seller.
As you have pointed out the corporate profit figures artificially skew the GDP figures upwards, but imports are deducted from GDP whereas VAT is due on the whole of the value of the sale in the country in which it is sold. GDP is better at giving an idea of local ‘value add’ because it is calculated by deducting imports, it isn’t a good way to work out the total value of VATable sales in a small island nation that almost certainly engages in high levels of imports.
As a simple illustration imagine an item imported into the Isle of Man which is made in the UK:
Manufactured in the UK
Sold by UK company to Isle of Man company for 90 pounds (+VAT)
Sold by Isle of Man company to a consumer for 100 pounds (+VAT)
This would add 90 pounds to UK GDP and 10 pounds to IoM GDP. VAT on the ultimate sale should mean 20 pounds goes to the Isle of Man Government because that is the location of the consumer who has paid the VAT.
Taken in isolation this doesn’t look right because the Isle of Man would get twice as much VAT as the GDP increase from the sale of the item, but it does illustrate the problems with working backwards from GDP figures to try to estimate VAT.
It is even worse in the case of an on-line purchase where the IoM GDP doesn’t increase at all, but the VAT should still be due to the IoM Government.
You might think that the anomalies will iron themselves out, but I am quite sure that importing is pretty much a one way street for the Isle of Man when it comes to any kind of physical goods.
This is not to say that I necessarily think you are wrong in your belief that the VAT sharing favours the Isle of Man.
But as I note, estimates of actual Manx consumption are in the formula base
They’re not perfect, but equally, there are some similarities between people in the IoM and elsewhere. As approximations go this one is probably pretty good
And the result is that where the money is spent in the UK / IoM firmament does not matter
Having worked in tax avoidance for many years the hypocrisy of this is that the boom era for the avoidance industry was during the reign of Tony Blair and Labour.
It has only been the last few years where the sector has felt the squeeze following the crackdown on common marketed schemes such as EBTs, EFURBS and SDLT sub-sale.
Perhaps the almighty left wing ought to look at their history of dealing with tax avoidance first…..
For heaven’s sake read what I have written on this blog
We were mighty critical of Blair and Brown
It’s only you who is living by stereotypes and straw man arguments
How can the UK treasury know the amount paid directly to it by IOM residents on goods & services bought in the UK online ?
Do the major retailers pay their VAT on a store by store basis, if not do they notify UK Treasury of all VAT paid from the IOM ?
Precisely because they don’t a formula is used
And Manx consumption is in the Manx GDP base used for that
So the best available approximation is used
I would argue that because of our location and the limited range of retail here on the Island that we would buy more goods online than the UK pro-rata
Was Margret Hodge successful in making our Common Purse VAT formula available to the public ?
But this is allowed for in the Common Purse
You are arguing a non point
As yet the answer to the last is ‘no’