Britain’s world-beating tax havens are an embarrassment

At the G7 gathering in Cornwall, the sound of self-congratulation will be deafening. The leaders of the world’s richest countries will rubber stamp a deal to set a global minimum tax rate of 15 per cent for multinationals.

The applause has already started. The chancellor Rishi Sunak, said the G7 agreement ensures “the right companies paid the right tax in the right places.”

There is another noise, of loud snorting. For those who specialise in pursuing those who avoid their taxes, statements like Sunak’s elicit mirth.

As they loll around their beachside hotel, the assembled premiers and presidents could have a spot of fun at their host’s expense. They might ask Boris Johnson which country was singled out for “providing the widest scope for international corporations to cut their tax bills” in a biennial survey published earlier this year.

As Johnson splutters, ruffles his hair and his cheeks go that by now familiar shade of red, they may see if he can also name “the greatest enabler of corporate tax abuse”, the destination ranked first in a global ranking of tax havens. And where was it that came second and third in the Tax Justice Network study?

Here is some prep for him. The country is Britain and the world’s top three tax havens are British Virgin Islands, Cayman Islands and Bermuda. All three are British Overseas Territories.

To them can be added the Channel Islands, Isle of Man, Gibraltar, and Turks and Caicos Islands. They all fall under Britain’s remit in some shape or form. We are the world’s number one provider and protector of tax havens.

The former business secretary, Sir Vince Cable, called tax havens “sunny places for shady people.” Putting a figure on how much they hide is impossible. But the most recurring statistic, used by the various watchdogs, is north of $20 trillion. One estimate reckons the total worldwide is $32 trillion.

Take Cayman. It has a domestic economy of less than $3 billion, but has attracted more external wealth than countries such as Japan and Canada – despite them having economies several hundred times larger. Hedge funds choose to register in Cayman because there are no direct taxes, because the legal system follows English common law and because it affords secrecy.

Companies registered there do not need to file a tax return so it’s not known how much they make. As a result, Cayman is a location of choice for hedge funds: two out of three of the world’s hedge funds are registered there, accounting for $1.3 trillion, and making Cayman the largest holder of US securities in the world. It’s “home” to 10,000 investment funds. Tiny Cayman holds a fifteenth of the world’s estimated $30 trillion of banking assets.

Cayman is under Britain’s control. As is Turks and Caicos. Not so long ago, London put its own governor in charge there due to corruption.

The common factor linking the world’s leading tax havens is Britain. The decline of our imperial might “allowed offshore enclaves in former colonies to flourish,” said Kojo Koram, editor of The War on Drugs and the Global Colour Line.

“The uneven and decentralised nature of the British Empire proved the perfect fit for nascent tax havens in the nineteenth and twentieth centuries,” he said. “Sovereignty wasn’t concentrated in Westminster, but rather dispersed across multiple layers of government: crown colonies, protectorates, dominions and overseas territories… By the early twentieth century, Britain’s courts had created the legal notion of ‘virtual residencies’, allowing companies across the globe to become incorporated in British imperial jurisdictions but avoid paying British tax. Fortunes were being built across Greater Britannia.”

Then, in Britain, after the Second World War, came the creation and building of the Welfare State. Taxation rose, and as colonies also sought their independence, the rich looked to protect their wealth. “The Cayman Islands and British Virgin Islands provided a lifeline,” said Koram. “The Caribbean became the preferred hideaway spot not only for Britain’s wealthy, but also for British wealth”.

Successive British governments did little to impede the growth of tax havens. Quite the reverse – they liked them. The Bank of England and Britain’s overseas development ministry actively championed them, believing they would attract foreign investment and stimulate economic growth, making them less dependent on Britain. They would also benefit the City which housed a booming tax advisory industry.

Covid-19 has seen campaigners redouble their efforts for a crackdown. They include senior members of the clergy, among them the ex-head of the Anglican Church and former Archbishop of Canterbury, Rowan Williams. They wrote a joint letter: “During this crisis many of the most vulnerable people in our society are paying the price for a health and welfare system woefully unprepared for an epidemic. Meanwhile, some large corporations continue to avoid responsibility, making huge profits yet hiding their wealth in tax havens. More than 80 per cent of the British public believe that legal tax avoidance is morally wrong. This crisis demonstrates why they are right… Developing countries are deprived of up to $400 billion every year by tax dodging.”

I once went to the Isle of Man as part of an investigation into terrorist financing. I’d been pointed towards a company that was registered there.

I turned up at the island’s companies registry, paid the search fee and asked for the file. The clerk, who was not busy, appeared bemused – possibly at the notion that anyone would make a physical search of a company registered in the Isle of Man.

He wandered off and returned a few minutes later with a beige card folder. Inside were the company’s papers. The company name was at the top, then the names of those who’d registered it – a firm of company formation specialists. Then, barely anything. I swear that as I left he was grinning.

If Britain wants to be taken seriously where taxes are concerned, it must first clean up its own act.