UK tax avoidance dilemma: Who’s to blame – Tories or Labour?
21 Nov 2017

A robust debate in parliament last week showed lawmakers are convinced that someone is to blame for the tax avoidance conundrum that gripped the UK for the past two weeks following the Paradise Papers leaks.

Members of Parliament from the ruling Conservative Party and opposition Labour sought to lay the blame at the others feet.

They seemed generally agreed that, while the Papers did not highlight illegal activity, it did bring out some worrisome trends, with the Scottish National Party’s Kirsty Blackman saying: “As everyone knows, tax evasion is illegal, but the Paradise Papers highlighted that tax avoidance is immoral.”

Launching off the debate, Labour blamed the Tories for the disposition the country finds itself in, especially with its British overseas territories (OTs):

“More than half of the Appleby offices are located in British tax havens. More than half of the entities that were exposed in the Panama Papers were incorporated in just one UK tax haven, the British Virgin Islands,” said Labour’s Dame Margaret Hodge, “estimates of the wealth held in tax havens are by their nature difficult to verify, but they vary from $7.6 trillion to $32 trillion.”

She also called for the introduction of publicly accessible registers of beneficial owners, which would show who owns what and where, especially for the OTs, and explained what was wrong with corporate secrecy:

“Would Bono have invested in tax havens if he had thought that we would all know? Would Lewis Hamilton have created a complex structure of companies to avoid VAT? Would the actors in “Mrs Brown’s Boys” have hidden their earnings in artificial financial structures if they had thought that we would find out? The answer is no,” she said.

It got to a point where, for a moment, the Labour team seemed to exhibit some nostalgia for former Tory Prime Minster David Cameron, reminiscent of years when he and then Chancellor George Osborne made commitments to tackle the issue.

The present government, had however, “watered down that commitment to public registers in British tax havens,” Hodge said.

“David Cameron understood that when he told the UK tax havens to rip aside “the cloak of secrecy” in 2013, when he urged them in 2014 to consult on a public register that was “vital to meeting the urgent challenges of illicit finance and tax evasion.”

Hodge also tackled an oft-mentioned excuse from the government, that its powers are limited regarding imposing rules on its OTs.

She said in the past, a Conservative government had used their powers to outlaw capital punishment in the Crown dependencies and OTs, and a Labour government used the same powers to outlaw discrimination against gay people.

“Today we should work together to outlaw the secrecy of those jurisdictions, which leads to such massive tax injustices,” she said.

Liberal Democrats leader Vince Cable also called for the government to be much more aggressive in pursuing the issue of the open register.

“They could give the overseas territories a deadline for the introduction of an open register. If the overseas territories do not comply, a series of sanctions could be introduced—for example, initially stopping companies registered there bidding for public contracts,” he said,

The Conservatives fought back, with the likes of Tory MP Andrew Mitchell saying they had not imposed a law in respect of the OTs because: “we would rather those havens took action themselves — to be fair, to some extent they have already started to do so.”

Tory MP Robert Jenrick went as far as to ask if the UK should be even asking the OTs such questions given that “the majority of the economy of the British Virgin Islands, in particular, is in financial services and the islands have recently been completely devastated by hurricanes, is now the right time to be imposing on the islanders rather than working with them?

Financial Secretary to the Treasury Mel Stride tried to do his bit, rolling out the billions that tax collector HMRC’s compliance section had brought in.

He also took a shot at Labour, saying: “The tax gap is the difference between what we could potentially bring in by way of tax and what we actually bring in, and it currently stands at 6%, which is a historical low — a world-beating figure. If the average tax gap today was the same as under the last Labour Government, there would be £45 billion less in our Exchequer.”

Meanwhile, Tory MP Neil O’Brien indicated that Labour’s plan for an offshore companies property levy is likely to raise zero pounds, quoting the Institute for Fiscal Studies.

The blame game is likely to continue any day now or when a new data leak emerges.

– Irene Madongo

Advance your CPD minutes for reading this article, by signing up and using the CPD Wallet

Must Read

Understanding EU anti-money laundering law: EU 4AMLD, EU 5AMLD, EU 6AMLD

In recent years the European Union has looked to its flex its legislative muscle and come up with an array of laws aimed at cracking down on money laundering and terrorism financing. Key to its package are its various directives, which impact national laws, banking operations and various other… Read More

Banking: Curbing employee fraud and corruption with an effective KYE program

The banking system’s vulnerability to fraud, corruption and money laundering is once again a focal point of debate in the wake of recent disclosures by the Central Bank of Nigeria that major losses have been recorded by banks from armed robbery cases and other criminal activities amounting to N12bn… Read More