Sunday December 24, 2006
The great domestic political question of the 20th century was whether the state’s tax rates should be set to benefit the working or middle class. The great domestic political question of the 21st ought to why the working and middle classes should pay taxes when the rich are all but exempt.
For the time being, few defenders of the status quo want to discuss it. When, for instance, you raise the case of Philip Green, who takes hundreds of millions of pounds from taxpaying shoppers in BHS and stashes them in companies held in his wife’s name in Monaco, they reply that however ugly and unpatriotic his behaviour looks, it doesn’t matter.
The rich may be different from you and me, but they can’t hurt you or me. Green and men like him do not alter the basics of the British economy because, for all the media’s fascination with the super-rich, they are a tiny band and what they do with their money doesn’t damage the lives of those they leave behind to pick up their bills.
I’m not sure that this defence of an unjust system can last much longer when it is becoming very clear that the super-rich’s indemnity from taxation is unbalancing the public accounts. In its end-of- year forecasts, the Centre for Economics and Business Research predicts that tax avoidance will soon lead to the Treasury breaking its rule that public debt must remain below 40 per cent of gross domestic product.
It’s not just the super-rich who are keeping revenues down. VAT fraud has been one of this year’s most profitable crimes and you are considered an eccentric in working-class Britain if you don’t buy contraband cigarettes. But, as always, ‘the scandal is what’s legal’, and Douglas McWilliams, the centre’s chief executive, says the lawful avoidance of tax by the wealthiest is no longer an irrelevance, but a growing burden on the majority who have no choice other than to pay up. The shortfalls are bad now and they are going to get worse, he believes. In the City, boardrooms, sport and entertainment, Britain is developing an ever more unequal winner-takes-all culture – and the winners want to take it all away from the Inland Revenue.
Philip Beresford, who compiles the Sunday Times Rich List, estimates that about 200 of the 1,000 richest are avoiding tax on huge scale, which doesn’t sound too bad, until he adds that the richer they are the more likely they are to hide their wealth.
In many cases, they don’t have to try too hard. Philip Green is not the only person to use Monaco as a home for his money. Since 1993, the British super-rich have been able to land in London in their private jets on Monday morning and fly back to Monaco, Switzerland or the Channel Islands on Thursday night. Despite enjoying the protection of Britain’s laws and the joys of its culture, a remarkably generous Treasury allowed them to pretend that they were really the residents of tax havens. A recent court case has begun the belated process of reducing the scope of the scam, but there is no sign of movement against billionaires in the Richard Branson mould who place the ultimate ownership of their businesses in tax havens or the foreign nationals who Gordon Brown allows to treat London as a duty-free shop.
The capital is full of Russian oligarchs and American tycoons because, uniquely for a country that purports to be a serious nation, Britain allows the foreign super-rich to live here without paying tax on the foreign assets in which the bulk of their wealth is stored. Other tax havens can’t compete. Monaco is a pleasant place for a summer holiday, but is just another half-empty Riviera resort in the winter. Geneva and the Channel Islands have their charms, but only those with a craving for the tedious enjoy living there.
The Chancellor has saved the wealthiest from being bored to death by giving them London, one of the world’s great cities, free of charge. However right-wing the Bush administration is, it would never dream of doing the same in Manhattan.
In public, the City paints a terrifying picture of foreign bankers fleeing Britain if the government requires them to pay the same tax rates as everyone else, but in private, no financier I know believes it. The odd Russian gangster will leave, they say, but London is too important a financial centre for global players to abandon.
Because Brown lacks the moral and political confidence to call the City’s bluff, his debauched tax system is debauching British society. Tax-free money is making housing in the south east and beyond too expensive for the middle class, let alone the working class that Labour once represented. The legacy of a decade of Labour rule is that the modest hope of a house in which they can have children is beyond hundreds of thousands of couples.
And as it debauches the economy, it also debauches politics. Lakshmi Mittal, the Indian steel tycoon and the richest man in Britain, is only the most prominent of the many tax-avoiders who have given money to a Labour party that presides over a system which allows him to avoid tax.
The cash-for-peerages scandal began when the Lords Appointments Commission noticed that Tony Blair was proposing to give Chai Patel, the Priory clinics founder, a seat in Parliament, even though he didn’t pay British taxes, but kept his millions in the Channel Islands.
When he looked back from the early 19th century and tried to explain why there had been a revolution in France in 1789 but not Britain, Alexis de Tocqueville said: ‘In England, the poor man enjoyed the privilege of exemption from taxation; in France, the rich.’ Two centuries on and a Labour Chancellor is telling the bulk of the electorate that he will tax them because they suffer from the twin misfortunes of not being foreigners and not being rich, while giving the plutocracy the exemptions of the old French aristocracy.
I know it is the season for goodwill, but neither he nor they should be allowed to get away with it.