Monday, June 25, 2007


Long long ago, in the dawn of this blog, I wrote a piece decrying the ignorance of a certain Prem Sikka over the legal status of UK Crown Dependencies, which said Sikka was advocating be 'closed down' and have their 'tax haven' status removed. Sikka's beef was that the existence of minimal-regulation, ultra-low tax regimes in places like Jersey encouraged the flow of money to terrorism.
Well, it's a year and a half later, and Johann Hari is banging the same drum, albeit for different reasons. As part of the current wisdom that Britain is swamped by ultra-rich locusts, buying up Holland Park with their bonuses and paying less tax than an office cleaner, Hari has two targets at which to aim.
In the past decade, London has become swollen with a class of the untaxed über-rich, because of a tax loophole nervously protected by the Government. If you are resident and domiciled in the UK, you have to pay full taxes on your worldwide income. But if you live in the UK yet claim not to be "domiciled" here, your worldwide income escapes tax entirely.
Well, actually, your worldwide income is subject to taxation from your place of domicile. Your UK income is taxed here. Whether or not you pay UK tax is dependent on your residency, not your domicile. The basic rule is that, should you be in the UK for 183 days or more in any year, or average 91 days or more over any four year period (there's more, but feel free to go and check yourself) you will be UK resident for tax purposes. This is an attempt to avoid double taxation - a standard practice and not a loophole.
Imagine that you are a French businessman with a summer home in the UK. You like to spend most weekends there and two months in the summer. You are therefore quite possibly tax-resident in the UK. Hari is suggesting that your income from your job in France (which is of course subject to French taxation) should be taxed in the UK. If, incidentally, you decide to set up a small business selling French cheese or some such in the UK, you will be taxed on it. Taxation on worldwide income on the basis of residence is wildly impractical.
One of the reasons that London and the South-east now has such crazy house prices - well out of the reach of even middle-class twentysomething couples - is because this overclass is artifically inflating prices with their untaxed incomes. The upper-middle class now has to compete with the impossibly rich for home help, school places and status symbols.
Well, I'm sure we all feel their pain. So Hari suggests that because the very rich aren't taxed enough, it makes us all poorer - even if only status-poor. What's the solution?
First he could close the loopholes for foreign billionaires and private equity kings in Britain. Then, to stop the minority of the super-rich who would actually act on their threats to leave Britain, he could lead an international battle to shut down the world's tax havens, which act as stinking drains on progressive governments everywhere.
Hmmm. Blaming the struggles of the relatively-impoverished middle classes on foreign financiers doesn't have a particularly glorious history. What about the tax havens? Well the first question, and the one old Sikka didn't answer all those months ago, was how?
Half of all the money stored in tax havens across the world - which totals £11.5 trillion - is either in British overseas territories such as the Cayman Islands, Bermuda and the British Virgin Islands, or British Crown Dependencies such as Jersey, Guernsey and the Isle of Man. Brown could issue an ultimatum: bring this money into the taxed economy, or cease to have the military and political protection of Britain.
Firstly, I rather doubt that Bermuda and Guernsey are over-flowing with chests of gold doubloons - the money is invested, re-invested, spent and re-spent. What Hari means is that Gordon Brown (or whoever the new Chancellor will be) doesn't get his mits on it. Which isn't the same thing at all. Secondly, Jersey, Guernsey and the Isle of Man (to say nothing of the others) do and always will have the military protection of the UK - what the hell is going to happen to them? Who's planning on invading? The Martians? And if a newly belligerent Belgium did decide to invade, does Hari think that the British Government would blink vapidly at them before getting distracted? It's nonsense. Quite apart from being nonsense, it's blackmail.
Hari is suggesting that the Prime Minister of the United Kingdom overrides the domestic policy of effectively independent statelets by bullying and threatening them. A crude form of imperialism, in other words, with the intention of destroying these islands' one major source of financial income. The threats he is supposed to use to get these islands to voluntarily destroy their economies are emptier than Peter Hain's fanclub. It's not only nonsensical blackmail; it's hopelessly unrealistic. Put simply, Brown can't do what Hari suggests; Brown shouldn't do what Hari suggests; and even if he did do what Hari suggests, nothing would come of it. Even gesture politics works better when the gesture means something.

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