Podcast: Richard Murphy, Taxation, Secrecy Jurisdictions and the Joy of Tax
This article is a response to the presentation given by Richard Murphy on his new book ‘The Joy of Tax’ which was launched at the 20th Edinburgh Independent Radical Book Fair. He spoke on a panel with Lesley Riddoch and Andy Wightman, and you can listen to the audio recording of the event in the podcast below.
The Edinburgh Independent Radical Book Fair is run by Wordpower Bookshop and is a key example of a form of free education created in the community by a small independent business. Inspiring!
The written article builds off of the prompt by Richard Murphy, whom I heard talk in the CRESC annual conference some years back when I was also presenting there. Then, as now, his messages stirred a vital understanding of what tax is, the purposes it serves and how we should be relating to it.
Trying out a ‘Visit, Listen, Discuss, Write’ event via the Ragged University project, the idea was to experiment with social learning in the landscape, and exercise lifelong learning by creating something from the experience. This is my digest and writing along with sharing the podcast…
Richard Murphy of the Tax Justice Network starts talking at 23 minutes into the podcast:
‘Tax havens are now at the heart of the global economy’, writes Nicholas Shaxson in the preface of his book ‘Treasure Islands; Tax Havens and the Men Who Stole The World’. He continues ‘Without understanding tax havens we will never properly understand the economic history of the modern world…Amid countless reviews now, the basic facts are not in dispute.
Nobody disagrees that Britain sits, spider-like, at the centre of a vast international web of tax havens, hoovering up trillions of dollars’ worth of business and capital from around the globe and funnelling it up to the City of London…
Nobody denies that there is something extremely peculiar about the City of London Corporation, Britain’s ancient and fortress-like internal ‘offshore island’ which has resisted waves of turbulent British history over the centuries while casting a protective, almost invisible umbrella over the banks.
Nobody denies now that the United States is a gigantic tax haven….nobody has tried to know holes in my particular arguments about how tax havens were a central ingredient in the global financial crisis, or how they are among the best friends Big Finance ever had.”
I first discovered conversation raised about how pervasive this via Professor Simon Szreter some time ago in Manchester. I was shocked. He recommended the book to me and others. I had no idea that tax dodging was coming to define the modern world, shape the values imposed across the voting, tax paying public.
I had no idea that large multinational corporations were so overtly asset stripping nation states and setting up a culture of hiding away wealth from the society base which helped generate it…
I was utterly naive, and in shock. I could not really take it on board. So I dug deeper…
We can find in the Public Accounts Committee Minutes of Evidence of the Treasury Select Committee of 12 October 2011, that Dave Hartnett Permanent Secretary for Tax, HM Revenue and Customs, gave evidence relating to deals done with Goldman Sachs. This is a matter of public record which reveals how HMRC has been run over that period as an indicator of the culture which exists:
- Q1 Chair: We are going to focus this afternoon first on tax disputes, and then we will look at PAYE and tax credits, if we can. I am going to start with a rather tough question: it seems to me that you lied when you told the Treasury Committee on 12 September that “I do not deal with Goldman’s tax affairs.” In preparing for this afternoon, we had access to a note of a meeting on 8 December in the offices of your lawyers which states that you had settled and, in fact, had “shaken hands” with Goldman Sachs on a deal on its tax affairs.
- Dave Hartnett: Chair, I did not lie, and I think the Hansard extract demonstrates that. I was first asked by Mr Norman whether I had had corporate hospitality from Goldman’s, and I explained that I had had supper at Goldman’s to speak to 20 FTSE 100 CFOs with one of my managing director colleagues from the Treasury. I went on to say that “I do not deal with Goldman’s tax affairs.” I met Goldman’s on a single occasion, on 19 November 2010, when I had been asked by two of my colleagues to assist them with a difficult relationship issue. I have no deep knowledge of Goldman’s tax affairs. I have never worked in a normal way, in my understanding, dealing with their tax affairs on an everyday and routine basis. I have never done that.
- Q2 Chair: The minutes of the meeting in Anthony Inglese’s office at 100
Parliament street on 8 December 2010 say that “a late submission had come in about a deal on which DH”-you-“had ‘shaken hands’ with GS”, which is Goldman Sachs. Is that a lie?
- Dave Hartnett: Well, I am not going to say it is a lie, and I am certainly not lying.
- Q3 Chair: Well, one or other is a lie.
- Dave Hartnett: No, Chair, I am afraid it is not. I was at a meeting on 19 November with two of my colleagues and representatives
- Q4 Chair: Did you do a deal with Goldman Sachs?
- Dave Hartnett: We reached a settlement
- Q5 Chair: On which you shook hands.
- Dave Hartnett: I have no recollection
In the words of Monty Python; Moving Swiftly Onwards….
It is a fine thing that parliamentary proceedings are held on public record and that we can fact check what has gone on so to inform ourselves.
I was made aware of the relationship between Dave Hartnett and Goldman Sachs’ tax avoidance antics when I read ‘The Great Tax Robbery: How Britain Became a Tax Haven for Fat Cats and Big Business’ By Richard Brooks.
Goldman Sachs had developed a scheme to avoid millions of pounds owed in national insurance contributions on bankers’ bonuses via offshore companies and trusts.
After resisting the rule of law for years, Goldman Sachs was excused an interest charge of about £20m which amounted to almost as much as the national insurance they had tried to avoid.
Richard Brooks used to be a tax inspector at HMRC and is now an investigative journalist who writes for Private Eye. In it he gives a vivid demonstration of the importance, and good value, of tax; what follows is an excerpt for review purposes:
“For every pound I earn I will pay around 7 pence for immediate access to professional healthcare for my family, 5 pence for my children’s education, 2 pence for living in relative security, around the same to have the country I live in defended and 11 pence for pensions and social security for my compatriots and my future self.
I even contribute half a pence to aid the developing world and, less heart-warmingly, 3 pence in interest to the various institutions from which we have collectively borrowed in order to spend more on these things than we have paid in so far. I might have plenty of quibbles with how the government to which I hand over a large chunk of my income spends it, but I can’t doubt the overall value I get for my money.
Despite all the waste in the system – the misguided ventures, the mismanagement, the disastrous IT contracts, the consultants’ fees, the overpriced private finance deals – as a provider of the things we need most of all the state remains fantastically efficient compared to any feasible alternative. It cost HMRC just £3.5bn to gather £446bn in taxes in 2010/11, a collection fee of 0.8%.
Even if the costs incurred by businesses in playing their part in the process were added to this figure, it would still be far lower than that for other revenue-raising organisations; a typical charity spends between 15 and 25% of its income on fundraising.
Spending the money is relatively cost-effective; the Department for International Development, for example, spends 3% of its budget on running costs, whereas Britain’s largest (and apparently well run) charity in the same sort of field, Oxfam, lays out 10% on support costs. The collective provision of healthcare through the National Health Service is far more efficient than private systems elsewhere in the world.
An authoritative study into healthcare systems over twenty-five years published in the British Medical Journal in 2011 concluded: ‘In cost-effective terms, i.e. economic input versus clinical output, the USA healthcare system was one of the least cost-effective in reduicing mortality rates whereas the UK was one of the most cost-effective over the period.
The central distinction between the systems is that one is privately funded, the other paid for by tax. If this were a club only a fool would not join. In fact nobody does opt out, but plenty happily enjoy the benefits of membership without paying their subs.”
A word for Private Eye: This publication has to be one of the most important news sources of our times promoting true investigative journalism and challenging all sorts of maladministration and malfeasance. Very interesting work they have done on tax shirkers and dodgy companies.
They have been recently using Land Registry data released under Freedom of Information laws, and then linking around 100,000 land title register entries to specific addresses, and has mapped all leasehold and freehold interests acquired by offshore companies between 2005 and 2014.
If you are wondering, Offshore means made, situated, or registered abroad, especially in order to take advantage of lower taxes or costs or less stringent regulation.
Using this data Private Eye has published a series of exposés of the companies, arms dealers, oligarchs, money launderers and others who use offshore companies. Now Private Eye, using the same data, is also publishing a database of all properties acquired by offshore companies from 1999 to 2014, showing the address, the offshore corporate owners (some have more than one) and, where available, the price paid.
They Caym ‘An They Went; Left us with sod all…
Another source I am going to draw on is the BBC production, ‘Britain’s Trillion Pound Island – Inside Cayman’ involving Jacques Peretti investigating the controversial British tax haven (Screened 22nd January 2016).
“Cayman isn’t a one-off. It’s part of a global web of tax havens. The system here is clever, not criminal. It’s all legal. At the last count in 2013, an NGO study found that 98 out of the top 100 firms on the UK stock exchange had companies in tax havens.
“though many of the companies we contacted told us they aren’t using Cayman to avoid tax liabilities back home….. What we think of one firm is actually made up of lots and lots of different companies.
Tesco told us it’s had four Cayman subsidiaries….National Grid told us it’s had six…..BP has had eight. Barclays has said they’ve had more than 100.
They’ve all told us it’s not for tax advantage. At the last count, those top 100 businesses on the UK stock exchange between them had a whopping 8,000 tax haven registered companies.”
Now, businesses may have registered companies in Cayman for all sorts of reasons, but some have pulled off some breathtaking creative accounting. Take Facebook. Facebook opened two companies in Dublin, Facebook Ireland Limited and Facebook Ireland Holdings Limited.
Facebook Ireland Limited made £1.4 billion…. But then they got charged £1.4 billion, which would have been unlucky if the company charging them hadn’t also been owned by Facebook – Facebook Holdings Limited.
After paying that, this company made no profit and this company made a profit of £1.4 billion. And this one’s shareholders are other Facebook companies, including one in the Cayman Islands. But guess where the money went? It went to tax-free…Cayman…. Facebook says the company complies with all relevant corporate regulations.
Strategies like this are perfectly legal, but because they’re so shameless, they’re also hush-hush. In fact, Cayman’s even got a law that means I could be arrested for asking certain questions about business.
It has been estimated that legal tax avoidance keeps £20 billion out of the UK Treasury every year. That’s exactly the same amount being cut by government departments delivering services to us in the next four years.“
So all in all Jacques Peretti has put together an insightful program about one of the many British tax havens. He has helped reveal to what extent our whole high street and stock market is invested in using the publicly paid for infrastructure (roads, health service, legal system, etc) whilst filling their boots and hiving off funds to avoid paying tax.
Mind The Tax Gap
In the podcast Richard Murphy explains that Westminster has halved the number of tax collectors in the last decade. He talks about tax cheats and the invention of austerity through free riders – people and companies who are taking advantage of the country, the people and the infrastructure built to serve the society.
Something he has helped us with is by developing the language with which we can better understand what we are dealing with. Using ‘Tax Haven’ has a nice warm fuzzy feeling to it – a haven sounds good. By reconstituting the discussion of ‘tax havens’ as ‘secrecy jurisdictions’ it better describes what these places are providing in societies.
He explains that for some reason, if people pay tax they feel they have a stake in how the country is run. This is another reason why tax is good for a society; it makes it prosperous and participative. Businesses need a level playing field in which to compete; when there are tax cheats, this destroys the ecology we need for a healthy, growing mixed market economy.
The tax gap in the 2010 to 2011 financial year was estimated to be £32 billion – 6.7% of the total tax that HMRC estimates was due – and tax evasion and avoidance together accounted for £9 billion of this.
A report for the Trades Union Congress by tax campaigner Richard Murphy in 2008 and came to a figure of around £12bn for tax avoided by companies, and £13bn for individuals.
I will leave you with a thought from Richard in the podcast questions [1 hr 21 min 42 sec]:
Scotland has not prosecuted a single company director for failure to file accounts or a corporation tax return since 2008 – why ? There are tens of thousands of companies in Scotland who don’t file corporation tax returns and accounts with the registrar of companies; there is a separate Scottish register and there have been no prosecutions because nobody’s bothered to do it. But that is a license for tax abuse in Scotland…and yet you’re not doing anything about it.
Scottish parliament needs to demand power over its own Scottish register of companies to pursue that; and Scotland needs to get rid of the Scottish Limited Partnership which is one of the strongest mechanisms for tax haven abuse around the world right now, and which was actually used to steal one eight of the GDP of Moldova.
I feel weary when I hear some people say they are ‘tax efficient’ !
It seems to be missing very important points of collective living.
Please do leave any thoughts on this article below.