Paradise Papers: how our tax evasion laws help the rich get richer
The recent leak of the Paradise Papers – thirteen million documents relating to the financial affairs of some of the world’s wealthiest people and corporations – is but another reminder of the distorting effect of wealth on our legal system and our politics. Among the many varied figures alleged to have been involved in tax avoidance schemes are the Duke of Westminster, the Barclay brothers (who own The Daily Telegraph), Lewis Hamilton and Jacob Rees-Mogg MP. Even the Queen has been implicated, with the Duchy of Lancaster estate apparently having invested money offshore as well as in BrightHouse, a rent-to-own retailer which has been accused of exploiting the poor and disabled with its exploitative interest rates. In the spotlight, too, are the universities of Oxford and Cambridge, both of which appear to have avoided tax via offshore havens.
Some will point out that these kinds of activities are legal. That is true. It is also no defence, as their legality is precisely the problem. Moreover, they are legal merely by omission – these individuals and companies make use of loopholes, unintended gaps in the law. To know where the loopholes are, and to exploit them effectively, requires an enormous amount of time, money and effort on the part of the law and accountancy firms employed by such wealthy individuals and corporations. Sometimes, though, it requires rather less time and effort – because, coincidentally, many of the private firms advising the government on financial regulations and tax laws also happen to advise many of the wealthy individuals seeking loopholes. But their services are always expensive, so only ever available to the fantastically well off.
Some will point out that these kinds of activities are legal. That is true. It is also no defence, as their legality is precisely the problem.
Somehow there exist people who think any of this is remotely defensible. If you can find the loopholes, they say, or can employ the people to find the loopholes for you, why shouldn’t you be able to avoid paying tax? There is something nauseating about this kind of argument, resembling the pride with which Donald Trump explained away his suspicious tax arrangements during last year’s presidential campaign. When accused in his first debate with Hillary Clinton of having avoided paying any income tax over a two-year period, he replied: “That makes me smart.” Trump, though, is not a smart man, and that’s part of the problem. You don’t have to be smart; you just have to be rich (which is certainly no guarantee of intelligence). Most of us, sadly, will work on a pay-as-you-earn basis, so the opportunity of squirreling away money in tax havens is not open to us. We will just have to put up with the awful reality of paying for the public services we use.
It might be argued that the wealthier members of our society are far less reliant on public services, and as such needn’t give up such a large share of their wealth. They are more likely to send their children to private schools, for instance, or to have private healthcare. Given the choice, then, they have the right to do what they wish with their money. But this argument rests on a simplistic understanding of the means by which wealth is accrued and of the way economies function. The wealth of large business owners, for instance, is overwhelmingly generated by that business’ employees. The owners are reliant on the work of those lower down, whose continued employment is in turn dependent on state-funded services like hospitals, social care, transport, and education.
Still there are those who will object; the wealthiest in our society are the ones who create and maintain employment – they are the ones who organise people into workforces and ensure their smooth and efficient functioning. And the effort needed to run a large multinational corporation shouldn’t be diminished, they say – it can be extremely stressful and require a great deal of personal sacrifice. Whether or not the stress of running a large company and being paid millions of pounds a year is comparable to that of trying to support a family on a low-paid job is a discussion for another day. For now, just consider the fact that Apple – the world’s largest company and one whose tax affairs are documented in the Paradise Papers – has in the past been forced to acknowledge the unusually high suicide rates at factories where iPhones are assembled in China, as well as the use of child labour.
The wider point here though, is that wealthy people and corporations simply could not thrive unless there was a network of state-funded infrastructure already there to support their enterprises, no matter how much effort they exerted or what degree of skill they showed in marshalling their workforce. Defenders of tax avoidance are seemingly blind to the reality of how our society is structured. They cannot see, or refuse to see, how the part is connected to and dependent upon the whole. It would be nice to believe that all of this is borne out of a simple, innocent unawareness of just how much our lives are dependent on state-funded services. It is perhaps easy to forget that the maintenance of the roads we use, the quality of our food and water, and the law and order we expect are all the result of people paying their taxes; so much of the case for tax avoidance is centred around the belief that the twenty, forty, or forty-five percent of one’s income simply disappears, never to be seen again.
Somehow there exist people who think any of this is remotely defensible.
So why do rich companies and individuals feel the need to hoard such vast sums of money? It is important to look beyond the example of the UK in order to really appreciate the appropriate level of moral outrage. Take a moment to consider the following. Eight men – eight – own as much wealth as the entire bottom half of the world’s population – around 3.6 billion people. Suppose – and bear with me here – you were to represent the average wealth of these men as the distance between London and New York City, which is around 3,500 miles. On this scale, the line representing the average wealth of the bottom half would be just over one centimetre long. Those eight men are each, on average, 450 million times wealthier than the average member of that bottom half. And the richest one percent are wealthier than the other ninety-nine percent combined.
The story in the UK is better but still pitiful. Levels of income inequality in the UK are now as bad as they were in the 1920s, and are worsening rapidly. The wealthiest ten percent of UK households have 1,154 times the wealth of the poorest ten percent. And unsurprisingly there is substantial evidence that inequality in the UK is drastically affecting life expectancy and wellbeing. While the super-rich find loopholes to avoid paying their fair share of tax, the poorest in our country are penalised simply for making errors on tax forms. There are more than five times as many government employees investigating benefit fraud and error than there are investigating tax evasion, despite tax evasion being responsible for over three times as much lost revenue.
These facts simply cannot be comprehended without an understanding of the way in which wealthy individuals and corporations influence the political and legal structures of our society, how they shape public opinion, and encourage ignorance and apathy. As Oxford’s own Professor Danny Dorling says, despite their “unimaginable privilege,” those with wealth “tend to view even the mildest redistribution of wealth as a mortal threat and mobilise energetically to prevent it.” Tax evasion is unethical in the extreme, but it is hard to see how any meaningful change will come about while the wealthy are still pulling the strings.