Bill Jamieson: Pious tax outcry over Panama Papers must be checked

A leak from Panama firm Mossack Fonseca has turned the spotlight firmly back on to tax avoision. Picture: Getty Images

Tax havens, offshore trusts, secrecy and loopholes: a massive leak from a Panama law firm and we’re off again round the great Grand National Tax Outcry Steeplechase.

Years of pious declarations and budget clampdowns promising to claw back billions – yet we still seem to have a tax system with more holes than Madonna’s fishnet stockings.

The outrage is far from confined to the predictable voices on the Left – quick this week to seize on Prime Minister David Cameron’s evasions on the location of his family’s wealth. It is evident across the small and medium-sized enterprise sector burdened with ever higher business rates, while cross-border corporations can jink and jive round the taxman. This sector fears that every new power given to HMRC comes to bear down, not on the targeted global giants but on the small platoons of business that cannot afford the defence of expensive lawyers and tax accountants: easy pickings.

For years successive chancellors have earnestly announced new clampdowns on high level tax evasion. By this time we should surely have clawed back tens of billions of pounds for government good works. Yet we still have an annual eruption of fulmination and outrage as fresh evidence comes to light of offshore “avoision” by the rich, the powerful and the well advised.

I use the word “avoision” because it best describes that twilight zone between tax avoidance, which is legal, and tax evasion, which is not. Across this murky swamp, tax accountant lamplighters lead the giant corporations and the “high net worths” to a terra-not-quite-firma beyond the reach of the tax authorities.

The UK is far from alone with this problem. Politicians and governments across the world have been rocked by revelations of wealth salted away in tax havens. Much of Russia – and the Kremlin kleptocracy around Vladimir Putin – is routinely tainted by scandals involving some of the country’s biggest companies. This week the prime minister of Iceland, Sigmundur Gunnlaugsson, was forced to resign after revelations that he owned an offshore company with his wife, opening him to accusations that he had concealed millions of dollars’ worth of family assets.

Resort to tax haven secrecy is not only widespread. It has also persisted over many years despite repeated voter outcries. Government clampdowns, political changes and election outcomes seem to have changed little. This has fed a growing belief that there exists behind the comforting notions of greater transparency and accountable government a “deep state” – one impervious to politics and able to carry on regardless.

It is a theme that recurs in the novels of John le Carre and is the centrepiece of a new book by former US Republican congressional aide Mike Lofogren – The Deep State: the Fall of the Constitution and the Rise of Shadow Government. It describes the way in which government institutions, the military, the judiciary and organised crime have succumbed to vested interests and high-octane corporate lobbying, all working to preserve the power and wealth of an entrenched elite. Little wonder that an angry politics of anti-establishment frustration has been increasingly evident across the US and much of Europe.

The counter-thesis is that the persistence of tax avoision is the product of the state itself: that if it was not so committed to relentless spending and expansion, its cost could be constrained and taxes reduced, reducing the impetus to avoid them. Clamping down on “evil low tax jurisdictions” is surely just another way for high tax jurisdictions to perpetuate their existence, to suppress competition and enable tax rates and levels to be kept high without external challenge.

What in immediate practical terms can we do to stem the resort to tax havens, given that every “clampdown” seems to breed ever more sophisticated techniques of evasion?

We now find ourselves facing awkward questions. Should MPs and MSPs be obliged to publish their tax returns, as is the case in Sweden? And should we stop there? What of spouses, partners and family members – should they not also be obliged to disclose? Prime Minister David Cameron previously maintained he was “very relaxed” about publishing his tax returns and said the “time is coming” for politicians to be more open about their personal finances. But this week found him first crafting a carefully worded statement and subsequently obliged to add the clarification that this would also apply to his family “in future”.

What of prospective parliamentary candidates? The Icelandic prime minister, we now learn, owned an offshore company with his wife but had not declared it when he entered parliament.

Should not civil servants, public officials, quangocrats and lobbyists also be obliged to disclose their income and wealth - and where it is located?

There are dangers in all of this. For such disclosure cannot stop at personal income alone. It would have to cover everything – and not just the media earnings of politicians and celebrities who have wished to keep these out of the public realm. It would also need to cover accumulated savings, wealth, family trusts, whether you are a beneficiary of trusts, and what, and from whom, you stand to inherit.

A democracy critically depends on a respect for privacy. But such a regime would corrode individual privacy: what we considered to be in the personal realm becomes public knowledge.

It could feed a politics of spite and envy – among the worst drivers of human grievance. It could expose officials to social media attack and potential criminal activity. And it sets us down a road at the end of which governments present and of a future complexion we cannot predict, come to know everything about the income, wealth and spending of all those in the public realm. It would also be able to apply personal pressure and threaten sanctions for non-compliance.

Thus, what might seem a benign extension of transparency and disclosure becomes a weapon that could inhibit public engagement.

Should companies be made to publish their arrangements and dealings with firms in low tax jurisdictions? There can be legitimate reasons why firms, whose commercial operations may be located in unstable or poorly policed areas, might choose to locate financial controls in more legally trustworthy jurisdictions offshore. And when it comes to legal definition, what is the definition of “low tax” for the purposes of legislation?

Should the UK government reintroduce direct control over British dependent territories? How might these administrations respond and what measures could be taken to enforce compliance? What precedents might this set? And would Scottish parliamentarians, having fought so strongly for tax devolution, be comfortable with the potential implications of such an extension of UK government power?

It cannot be right that the privileged can opt out of tax obligations through secretive tax havens, or that household-name companies can reduce their UK tax liabilities to a pittance. And it cannot be right that successive demands for action by voters are rendered ineffective. But if we are to take on “the deep state” all the consequences have to be weighed – and a balance struck.