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April 5, 2016updated 01 Aug 2016 4:16pm

Panama Papers’ legacy of tax avoidance began with Blair & Brown

By William Cash

William Cash believes the Panama Papers epitomise a tax efficiency heritage that began in London under New Labour

The ‘leaked’ Panama Papers has been the cause of much rejoicing and back-slapping in left-wing inclined circles. Headlines such as ‘Biggest ever leak shows how the rich use tax havens’ have reminded us once again that there is a flourishing ‘off-shore’ tax and trust legal industry with the law firm of Mossack Fonseca now held up as the global bad boy villain law firm. It is seen as the sort of firm that would doubtless not have blinked about looking after the financial affairs of a rogue like Richard Roper in The Night Manager. But before the media over-congratulate themselves on exposing the workings of off-shore banking and legal with another ‘leak’ (it is unclear whether money was paid for the data as in the case of the secret Swiss HSBC accounts)- it is worth asking who actually facilitated this culture of off-shore banking. It has caused such joy to the left by exposing, as the Guardian fulminated:  ‘the myriad ways in which the rich can exploit secretive offshore tax regimes’. But who was responsible for the explosion off this off-shore secrecy? The same people who actively encouraged foreigners to buy expensive property in London and spend vast amounts in our hotels and Mayfair restaurants.

The answer is successive Labour governments, led by Tony Blair and Gordon Brown who used the VAT receipts and high stamp duty rates on London property prices to plug the black holes in our country’s national accounts.

Whilst nobody should be surprised to see that David Cameron’s millionaire family have been using expensive off-shore tax structures to avoid paying UK tax for many years – this came out in 2012 – what is even less surprising is how deafeningly quiet Tony Blair – who has amassed a £50 million fortune after leaving office –  has been on the scandal.

If Labour and the Conservative governments were so keen on squeezing the rich, why didn’t they close down all the off-shore bank accounts and tax loopholes when they were in power, especially when the excesses of UK off-shore tax avoidance were at their very worst under Blair and Brown? The issue with the Panama Papers scandal is not ‘wealth inequality’ but political hypocrisy. It’s worth remembering that the HSBC scandal was exposed in 2006 – nearly a decade ago. Cameron may vow about wanting to end ‘tax secrecy’ but why is it taking him nearly a decade to do anything? A government cannot ‘spend’ its way to wealth equality as it simply doesn’t work.

There will always be wealth inequality so it is only reasonable for the wealthiest to pay the most tax – which they do – in order to support the less advantaged parts of society. But if governments – such as those of Tony Blair and Gordon Brown as well as Cameron –  make it perfectly legal for people to structure their finances in a way that is ‘tax efficient’, albeit morally dubious, can they really be  blamed for taking advantage of a system that has been constructed by politicians for their benefit?

This clichéd global rich bashing is much more than the ‘politics of envy’ – it is the politics of ignorance and little more than calculated and populist electioneering that regards the rich as the problem when the real problem is not with the super-rich who have invaded our Mayfair pavements and Chelsea garden squares – and propped up the UK economy for so long – but rather the political system and successive series of governments that created such a system.

Should we blame the super-rich for coming to London? No. What is often forgotten in the wealth inequality debate is that that the chief architects of the holy, or unholy, alliance between the international rich – who see themselves as Global Citizens – and London was Tony Blair’s we’re ‘intensely relaxed’ about being rich Labour government that existed when London seized the financial crown from New York as the new global capital of the world.

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The reason was because the appeal of New York to Global Citizens had literally gone up in smoke. Not only did 9/11 seriously dent New York’s financial markets but more importantly the Sarbanes-Oxley regulations that were introduced over-regulated New York’s financial sector, effectively passing the crown onto London. It didn’t take long for Blair – with Brown as his chancellor – to quickly work out that the only way that the Labour government could afford to tax and spend was if the UK economy was subsidized by not just the wealthy, but most importantly the new breed of super-rich – or the tax conscious rich as we called them when we started Spear’s in 2006 above a kebab shop in Notting Hill Gate.

The truth is that, although not widely noted, the Labour government was playing a game of double mirrors as Gordon Brown pursued a domestic tax policy that roughly raised the same level of tax as the Tories had in the previous decade whilst also supporting London as a global tax haven to such an extent that by the end of his term as Chancellor the UK has become the ‘most populous tax haven in the world’ according to an IMF study. Indeed Brown’s chief economic legacy was to make the UK the billionaire and oligarch global citizens ‘first choice’ of residence.

So it wasn’t Brown’s Tory sleaze predecessors. In 1993 Brown wrote ‘The Chancellor should end the tax abuses which reach to the heart of our public finances by indulging the super rich at the expense of all the rest of us’ Yet by the time Brown was actually in charge of the nation’s finances it quickly dawned on him that in order to re-distribute the wealth he needed to actually have some money coming in; and for that he relied on the mouth-watering VAT receipts, stamp duty, corporation taxes and other income streams that flowed into the Treasury as a result of these very high spending Non Doms and international rich that had made London their social HQ and moneyed playground. The reason Mandelson said that Labour were ‘relaxed’ about the rich is that you cannot build hospitals, pay benefits and look after the elderly if you can’t find somebody to pay for it. And for Brown, the golden goose – however much he may have privately loathed them – were the international rich brigade, the Non Doms, along with the financial services sector.

So it was Brown and Blair that made Britain the tax haven of choice for the world’s mega-rich. This was also the conclusion that Robert Peston came to in his book Who Runs Britain in which he set out how Gordon Brown’s actions had created London as a Mecca for the super-rich, saying that ‘he very carefully shied away from ever alienating them’. Our problem with the wealth divide debate is that the many of the problems with social inequality are not solved by money – many true entrepreneurs work for free, out of a sense of vocation, and are not even driven by money, let alone greed.

To define ‘wealth’ in material or financial terms is a very old, 80’s style idea. Despite the fact that Panama may be on the OECD’s ‘grey list’ of offshore territories they have never been prosecuted. It is not a crime to be on the OECD’s grey list. If you try to make ‘tax efficiency’ illegal you will always drive it underground and there will always be another Panama who are willing to welcome Global Citizens who see themselves as nomads.

Do we approve of such off-shore jurisdictions. No. But when the dust settles, we suspect the allegations of widespread fraud and illegality may prove to be fiction. One is reminded on the final scene in the Jeremy Irons film Reversal of Fortune, when Claus Von Bulow thanks his lawyer Alan Dershowitz for getting him off the hook for the alleged murder of his wife. As he says goodbye, having been found ‘not guilty’ on legal technicalities, his lawyer thanks him for the instruction of a lifetime but says: ‘Morally you are on your own’.

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