Monthly Archives: April 2016

The Panama Tax Scandal

This week we have been rocked by the Tax Avoidance scandal coming out of Panama, after a whistle-blower leaked more than 11 million documents from the law-firm Mossack Fonseca. This firm has spent the last 40 years helping their wealthy clients worldwide to hide money and so avoid tax, and the leaked documents revealed the names of many people from the world of business and politics who have benefited. It will come as no surprise that the wealthy business elite do whatever they can to avoid tax, nor will it surprise many people that the leaders of countries like Russia, the Ukraine and Argentina do similar things. However what is shocking is that Western leaders like the Prime Minister of Iceland (who has now resigned) and even our own Prime Minister David Cameron have also been implicated.

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David Cameron has got caught up in the ‘Panama Papers’ scandal. Picture © Willwal

We in the West have come to believe that institutionalised government corruption is essentially a Third World problem, but this leak reveals that not to be the case. Though it may be true that blatant corruption (involving ‘backhanders’, ‘cash in brown envelopes’, ‘family favours’ and the like) is virtually absent from Western politics, it has been replaced by a far cleverer but more insidious form of wrong-doing. Nowadays our wealthy elites employ armies of lawyers to find loopholes in the legislation, which mean they can avoid tax without actually breaking the law, and that often involves taking their money offshore to some tax-haven where rates are artificially low. Added to that many of these tax havens employ high levels of secrecy which mean it can be very difficult for the taxman to get to the bottom of what is really going on, and in such circumstances, with limited resources, the revenue services are often forced to abandon any investigations.

Many people have said that this is even more evidence that the government should change the law and clamp down on these loopholes, but what incentive is there for them to do that if our own leaders are using the loopholes themselves? Even worse, the fact that many Tory (and Labour) donors are also using tax havens and other tax avoidance techniques, creates a massive conflict of interest right at the heart of our democratic system. ‘He who pays the piper calls the tune’, and Party donations would soon dry up if any government made serious efforts to tackle the illicit wealth of their own donors (it’s worth remembering at this point that over 50% of Tory Party funding comes from the financial sector.*)

Consequently though our politicians love to make all sorts of statements about the ‘moral repugnance’ of tax avoidance, the reality is they do the minimum required to keep the public happy, while they and their mates carry on as usual. An example of this is the government’s recent clampdown on tax avoidance by small businesses, while at the same time blocking EU legislation to clamp down on abuse by offshore trusts, which is a much bigger problem*. The nett result? The government trumpets the fact it aims to cut tax avoidance by £12bn, which sounds huge, but neglects to mention that with tax avoidance running at an estimated £95bn/year, that represents only 13% of the total. Until we have sorted out the conflict of interest created by the private funding of our political parties, legislation will continue to be enacted (or not enacted) which puts the needs of the privileged and wealthy over the needs of ordinary people. And this tax avoidance scandal is just one more symptom of that.

* Tory Funding  http://www.theguardian.com/politics/2011/feb/08/tory-funds-half-city-banks-financial-sector

* Trusts http://www.independent.co.uk/news/uk/politics/david-cameron-intervened-stop-tax-crackdown-offshore-trusts-panama-papers-eu-a6972311.html

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Crisis in British Steel

This week we have seen the Tory government slowly getting engulfed in the crisis caused by Indian company Tata’s threat to close steel works across the UK. As well as meaning that the UK would no longer have a viable steel industry, if this were to happen there would be the awful human cost of 15,000 direct job losses, and potentially 25,000 more in associated industries (with communities in Port Talbot and Scunthorpe being particularly badly affected). The government is desperately trying to get out of this mess, not because they care about the steel industry, or the lives of steel workers, but simply to avoid the political fallout for their own party. The reality is that their belief in ‘Free Markets‘, and their support for business and profit over the lives of ordinary people makes events such as this inevitable.

Britain’s steel industry was privatised by Margaret Thatcher in 1988, and after a succession of business deals was taken over by Indian conglomerate Tata in 2007. Tata, to be fair, haven’t done a bad job of running the company, and have generally retained the support of their workers. However the business environment has changed over the years, and the UK operations are now losing £1m a day, which is clearly unsustainable. Tata have tried to make it work but have now decided to give up.

After 90 years of operation the Port Talbot steel works are now threatened with closure. Picture © Chris Shaw

There are two main reasons for the losses – Britains very high energy costs (partly as a result of Green levies on fossil fuels), and huge amounts of cheap Chinese steel undercutting the market. And this is where Tory (and Blairite Labour’s) belief in the Free Market falls to pieces. It is undoubtedly a good thing to regulate industry for the common good, and things such as employee rights, health and safety, anti-pollution legislation, and Green levies to tackle climate change should all be applauded. However if any company which is burdened with those extra costs then has to compete with companies which are not so tightly regulated, inevitably they will lose out. China has a dreadful record of employee rights, underpays its workers, doesn’t seem to care about pollution at all, certainly doesn’t use Green levies, and as 70% of its industry is nationalised has a very high level of state subsidy. Therefore it is hardly surprising their steel is cheap. The solution to this, even for those who believe in ‘Free Markets’,  is to exclude their dirty industry from our free market until they clean their act up. This can easily be done through punitive tariffs.

Now the problem has been building for some time and the EU, recognising this, and in a bid to protect its steel manufacturers, has already tried to impose such tariffs on cheap Chinese steel imports. The irony is these tariffs were blocked by, among others, Sajid Javid the Tory business minister! The Tories’ belief in ‘Free Markets’ is so strong that they are prepared to sacrifice an entire industry, and ruin the lives of thousands of ordinary people, just to pursue their economic ideology.  They try and justify it by saying cheap steel is good for other parts of the economy – but that shows, yet again, how they believe that profit for business is far more important than the devastating impact on the lives of 40,000 people. It also demonstrates how Free Market ideology leads to short-term thinking – at some point steel prices will rise, and the British steel industry will become financially viable again; however if in the meantime the industry has been completely destroyed, then it will not be able to return, and Britain will be at the mercy of (possibly very expensive) foreign imports. Tory Free Market policy shows a complete lack of strategic thinking, and as well as being awful for the workers directly affected is, in the longer term, awful for the whole country.

Tories (and other Free Market believers) just don’t get this, which is why they are now desperately trying to appear as if they are doing something, when in reality they are quite happy to do nothing at all and let the steel industry collapse.

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