It’s a big week for Britain’s overseas territories, as the government is due to unveil new guidance tomorrow on the subject of tax.
As you may remember, tax havens are small territories that charge little or no tax, enticing wealthy companies and individuals to relocate their finances there. It’s a useful way for rich people to avoid paying anything back to the markets and societies where they do business. It’s been estimated that poor countries miss out on $160 billion in unpaid business taxes, money that should be building schools and hospitals. Tax havens are a form of legalised robbery that facilitates the flight of capital out of both rich and poor countries alike, exacerbates inequality, funds crime and terrorism, and undermines legislation worldwide.
Britain operates around a quarter of the world’s tax havens, the last remnants of our colonial empire. To our shame, we’ve stood in the way of many efforts to reform, but Gordon Brown promised to deal with them earlier this year. It may be because he had a crisis of conscience, or because Obama started talking about them, or because he has a large deficit to fix. Either way, it looks like their time is up.
Ultimately, it’s their own fault. Territories such as Bermuda, Jersey, or Gibraltar, have over-specialised, weighting their economies around financial services. When the recession hit and the demand for financial services dropped away, they’ve found themselves unable to balance their budgets. This leaves Britain with two choices – either bail out the tax havens, or tell them to raise taxes.
Perhaps in the past we’d have bailed them out, but with the G20 committed to reigning them in, this could be the end of our little empire. We’ll find out tomorrow. Needless to say, it’s bad news for the islands themselves. The traditional way to top up their budgets, ie raise taxes, would simultaneously destroy their economy.