FPTP - David Cameron, Tax Havens and the G8


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David Cameron used the G8 Summit in June 2013 to try to push for action on tax avoidance. However, given Britain’s role in the global network of tax havens, some have questioned his sincerity.

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FPTP - David Cameron, Tax Havens and the G8

  1. 1. Dan Glazebrook, City College Bath David Cameron, tax havens and the G8 Cameron used the G8 Summit in June to try to push for action on tax avoidance. However, given Britain’s role in the global network of tax havens, some have questioned his sincerity. The problem of tax avoidance has become a big issue in recent years as anger grows at the ability of wealthy individuals and corporations to move their money abroad into ‘tax havens’ with minimal taxes, and thus cut down their tax bill. This is seen as particularly unfair at a time when most people are suffering from ‘austerity’ measures brought on by the recession – pay freezes, tax rises and cuts to public services and has become a hot political issue in part thanks to pressure groups such as UK Uncut, who have highlighted tax avoidance by companies such as Vodafone and Starbucks through organising ‘sit-ins’ of their outlets. It is estimated that wealthy individuals alone (not including corporations) hold between ten and twenty trillion US dollars in offshore tax havens, meaning avoidance of around £250billion - £500billion worth of tax. But tax havens have also been criticised for the secrecy they provide their users, which allows criminals to hide their money there. This is a particular problem for developing countries, with weaker legal frameworks and higher levels of corruption; a recent report by Global Financial Integrity estimated flows of illicit money out of developing countries into tax havens to total around $1.25 trillion per year, (roughly ten times the total value of aid given to developing countries by the rich world each year). Britain has a particular responsibility for tackling tax havens, as over half the world’s tax havens are at least partially controlled by Britain. As tax haven expert Nicholas Shaxson puts it, “the City of London is effectively the grand-daddy of the global offshore [tax haven] system”. Crown dependencies such as Jersey, Guernsey and the Isle of Man are major tax havens, as are overseas British territories such as the Cayman islands, the Virgin islands, Bermuda and Gibraltar. Many of the others are countries in the British Commonwealth with deep rooted ties to Britain and the London banks. So many tax campaigners were happy to see that David Cameron had put dealing with tax avoidance at the top of the agenda of the recent G8 Summit (a meeting between 8 of the world’s most powerful leaders). Cameron had hoped to get leaders to sign up to an ‘action plan’ which would help tackle tax avoidance by forcing companies to make it public who they are owned by. This information could then be shared by different tax authorities to ensure everyone paid their fair share.
  2. 2. Dan Glazebrook, City College Bath David Cameron, tax havens and the G8 (continued) Unfortunately, little of substance was agreed. The final document was more a ‘plan for a plan’ which avoided making any specific commitments to achieve anything by any particular date, with Kevin Watkins of the Overseas Development Institute calling it “simply a wish list”. Cameron himself is partly to blame for this failure, according to the Guardian, “for leaving it until it was too late to start the heavy lobbying that was clearly going to be needed to get the rest of the G8 to move on tax”. Cameron has also been criticised for hypocrisy on a number of counts. Firstly, Britain is one of the only countries in the world where ‘bearer shares’ can be bought; these shares are specifically designed to allow their owners to remain anonymous, and the World Bank has criticised them for facilitating money laundering. As one expert put it, “Other countries will rightly challenge the sincerity of the proposals to increase tax transparency. They will say: ‘get your own house in order first’”. Secondly, the City of London authorities have been negotiating with the Kenyan government on plans to create an ‘International Financial Centre’ in Kenya. Many believe this will effectively turn Kenya into the first tax haven in mainland Africa. Whilst campaigners are pleased to see the issue of tax avoidance and tax havens increasingly on the political agenda, many feel that Britain is not doing enough to crack down. Having had his plans for change watered down at the G8, Cameron can argue that he is unable to do much without the cooperation of other countries. But with over half the world’s tax havens controlled by the UK – and with UK banks pushing for the creation of yet more – some believe there is a lot he could do without anyone else’s help Questions What are ‘tax havens’, and why does Britain have a particular responsibility for dealing with tax havens? To what extent have UK Uncut been successful in achieving their goals? What pressures is Cameron likely to be under to a) make a serious attempt to deal with tax havens? b) prevent meaningful reform of tax havens?