Britain’s Tax Avoidance Scandal and David Cameron’s Colossal Hypocrisy

22.6.12

When David Cameron responded to a Times investigation into offshore tax avoidance schemes, which found that around 1,000 individuals — including the comedian Jimmy Carr, and other celebrities, including musicians and sports stars — were paying as little as 1% of their earnings in tax through a legal, but morally unacceptable scheme in Jersey, a notorious tax haven, he decided to take the moral high ground.

Saying that media reports of Carr’s financial arrangements suggested “straightforward tax avoidance,” the Prime Minister added:

I think some of these schemes — and I think particularly of the Jimmy Carr scheme — I have had time to read about and I just think this is completely wrong [sic]. People work hard, they pay their taxes, they save up to go to one of his shows. They buy the tickets. He is taking the money from those tickets and he, as far as I can see, is putting all of that into some very dodgy tax avoiding schemes. That is wrong. There is nothing wrong with people planning their tax affairs to invest in their pension and plan for their retirement — that sort of tax management is fine. But some of these schemes we have seen are quite frankly morally wrong. The government is acting by looking at a general anti-avoidance law but we do need to make progress on this. It is not fair on hardworking people who do the right thing and pay their taxes to see these sorts of scams taking place.

The Times revealed that Carr was a significant member of K2, based in Jersey, a tax avoidance scheme promoted by Peak Performance Accountants (based in Scotland). He apparently paid £3.3 million a year into the K2 trust, which then returned the money in the form of a loan, which was not subject to income tax.

The Times also claimed that Gary Barlow, Howard Donald and Mark Owen of Take That — and their manager, Jonathan Wild — “invested at least £26m in another scheme run by Icebreaker Management Services,” as the Guardian explained, and that those using K2 “shelter £168m from the taxman each year.”

A spokesman for HMRC (the revenue and customs service) said they had “successfully challenged an avoidance scheme run by Icebreaker LLP, winning on the main arguments in the tribunals,” as the Guardian put it, and noted that “the K2 scheme was already under investigation.” He also explained, “We are now preparing to litigate Icebreaker 2 but for legal reasons cannot say more at this time. We examine the implementation of avoidance schemes in detail and will not let any aspect of these cases go unchallenged.”

Downing Street’s media machine was all over the story after the PM’s statement. A spokeswoman said that David Cameron backed George Osborne’s description of aggressive tax avoidance as “morally repugnant,” and another Downing street source “appeared to harden the government’s position on celebrities’ tax affairs,” saying, “All tax avoidance schemes need to be addressed by HMRC whichever big-name stars are involved.” In addition, as the Guardian also noted, “No. 10 sources stressed that a general tax avoidance rule, due to come in next year, is the best way of handling these kind of tax loopholes, rather than constantly chasing down every individual tax scheme.”

If this were true, it would be welcome news, but after Jimmy Carr took most of the heat (amusingly, having appeared in a sketch attacking corporate tax avoidance), and then apologised for his “terrible error of judgment,” we’re now left to reflect on how far beyond Jimmy Carr this scandal will go, and whether David Cameron will regret speaking out, when his mock concern is so stinkingly hypocritical.

As UK Uncut explained in a press release, “Wealthy individuals buying tax avoidance schemes from high-flying accountants, in order to put as little money as possible into the public purse, are clearly acting immorally. However, this is not just a case of a few bad apples, this is a systemic problem because tax avoidance has become an industry in this country.”

UK Uncut are correct. Since arriving on the activist scene in October 2010, with their theatrical occupations of the high street outlets of notorious tax evaders, beginning with Vodafone, which had avoided paying £6bn in tax, they have had a manifesto available on their website, which states, “We are told that the only way to reduce the deficit is to cut public services. This is certainly not the case. There are alternatives, but the government chooses to ignore them, highlighting the fact that the cuts are based on ideology, not necessity. One alternative is to clamp down on tax avoidance by corporations and the rich and tax evasion, estimated to cost the state £95bn a year.”

That figure comes from “There is an alternative: The case against cuts in public spending,” a briefing produced by the Public and Commercial Services Union (PCS), which stated:

Addressing the ‘tax gap’ is a vital part of tackling the deficit. Figures produced for PCS by the Tax Justice Network show that £25 billion is lost annually in tax avoidance and a further £70 billion in tax evasion by large companies and wealthy individuals.

An additional £26 billion is going uncollected. Therefore PCS estimates the total annual tax gap at over £120 billion (more than three-quarters of the annual deficit!). It is not just PCS calculating this; leaked Treasury documents in 2006 estimated the tax gap at between £97 and £150 billion.

As activists note, tackling these problems rigorously would be a fair alternative to the £81bn, four-year programme of cuts that the government has embarked on instead, putting the burden onto students, the poor, the old, the ill, the unemployed and the disabled, rather than on those avoiding tax.

The PSC also explained:

If the modest Robin Hood tax — a 0.05% tax on global financial transactions — was applied to UK financial institutions it would raise an estimated £20–30bn per year. This alone would reduce the annual deficit by between 12.5% and 20%.

Unfortunately, the government has no interest in the Robin Hood tax — and there is no sign, despite the fine words, that ministers are interested in curbing tax avoidance at all. George Osborne may have described aggressive tax avoidance as “morally repugnant,” but that obviously doesn’t mean that he has a problem with moral repugnance. As the Guardian noted after the budget in March:

For all the chancellor’s rhetoric about clamping down on tax dodging as a quid pro quo for abandoning the 50p tax rate, some of the biggest handouts will be in tax cuts and tax-avoidance-made-simple for multinationals. But this is no surprise, given that the multinationals themselves have been closely involved in rewriting the tax rules.

The budget will usher in major changes to the way UK-based multinationals are taxed on profits from their overseas subsidiaries, as well as huge cuts in corporation tax. Over the lifetime of this parliament, about £20bn will be lost in tax receipts as a result, according to the Treasury’s own estimates [PDF].

By the time George Osborne’s cuts to corporation tax — from 28% when the coalition took power, to 23% by 2015 — have been phased in, they will have resulted in losses of more than £5bn a year to the revenue. A further cut — to just 20% — was floated this month.

In addition to these losses in revenue, the exchequer will be deprived of close to £1bn a year by 2015 in taxes on foreign subsidiaries. The tax changes involved — to the controlled foreign companies rules — are so complex and arcane, much of the proposed cuts to taxing offshore profits have slipped in under the radar.

The Treasury argues the reforms are necessary to stimulate growth and to make our corporate tax system “more competitive”. But this is a race to the bottom. The changes will encourage multinationals to shift more of their business to tax havens. There is no benefit to small- and medium-sized British companies. The reforms represent a triumph of corporate regulatory capture, begun under the last Labour government and accelerated under this one.

These £20bn losses — on top of the eye-watering figures identified for the PCS — certainly indicate what action David Cameron should be taking if his indignation about actions that are “morally wrong” were credible. As with the Chancellor, however, the PM is actually enormously comfortable with “morally wrong” activities, so long as they’re by members of his own party, and/or the corporate interests with whom he associates.

The most notorious example, which emerged in the run-up to the General Election, but sadly failed to mire the Tories in sleaze, was the revelation, in March 2010, that Lord Ashcroft, the Conservative Party’s former treasurer and deputy chairman at the time, who donated more than £10m to the party, was “non-domiciled” in the UK, and therefore did not pay UK tax on earnings outside the UK.

Another notorious figure is Sir Philip Green, whose Arcadia retail clothing empire includes Topshop and Miss Selfridge. Green was working as an adviser to the government on efficiency in 2010, when he was targeted by UK Uncut, facing allegations that he avoided a personal tax bill of £300m. As the Guardian explained, “Green’s family banked one of the biggest pay cheques in corporate history in 2005 when his Arcadia fashion business … paid a £1.2bn dividend. The record-breaking payment was made to his wife, Tina, who lives in Monaco and is the direct owner of Arcadia. As a result, no UK income tax was due.”

The Guardian also noted that, in April, Sarah Southern, “the lobbyist at the centre of the recent cash-for-Cameron scandal,” told undercover reporters that “[a]n unnamed Tory donor avoided tax by flying outside UK airspace on his private jet at night,” and was “said to have routinely flown out of Luton airport in the evening so he could sleep on his jet.” The Guardian added, “Because he was outside British jurisdiction at night, this allowed him to extend the number of days he could stay in the UK without paying tax. As a non-resident, he could spend just 91 full days in the country each year.”

Another example cited by the Guardian involved Lycamobile, a mobile phone company based in Canary Wharf, and valued at £88m, which “has paid no corporation tax for three years,” and is also the Tories’ “most generous corporate donor after giving more than £300,000 over the last nine months.”

Hopefully, David Cameron’s outburst of moral indignation will focus attention on his own party, and will enable us to scrutinise the tax dealings of those who are subjecting everyone except the rich to the savage austerity programme that is described as necessary — but only to those who, like the Tories, have no intention of dealing with the epidemic of tax avoidance in which, evidently, they are as mired as so many others with money.

Unsurprisingly, the signs, so far, are that the opposite is true. Although, in April, David Cameron proposed that he and senior ministers would disclose their tax returns, a spokeswoman at Downing Street suggested on Thursday that they were preparing to abandon the plans, as the Guardian put it, noting that she said that the proposal was still being “looked into,” and that Ministers were “not closed to the idea”, but that it was “not a very near-future thing.”

“Privately,” the Guardian added, “senior Tories are concerned that Cameron’s comments on Carr … were a tactical mistake because they gave journalists a green light to investigate the tax affairs of Conservative ministers, MPs and donors.”

Quite so. Those who want to know more are advised to check out this excellent report from the Guardian in April, looking at how David cameron’s father was major player in the offshore banking business. As was explained:

Ian Cameron took advantage of a new climate of investment after all capital controls were abolished in 1979, making it legal to take any sum of money out of the country without it being taxed or controlled by the UK government.

Not long after the change, brought in by Margaret Thatcher after her first month in power, Ian Cameron began setting up and directing investment funds in tax havens around the world.

Leaving his full-time role as a City stockbroker, Ian Cameron went on to act as chairman of Close International Asset management, a multimillion-pound investment fund based in Jersey; as a senior director of Blairmore Holdings Inc, registered in Panama City and currently worth £25m; and he was also a shareholder in Blairmore Asset Management based in Geneva.

The Guardian also noted:

Cameron’s father was “instrumental” in setting up the Panamanian company, Blairmore Holdings, in 1982, which was exempt from UK tax, when David was a pupil at Eton aged 16. […]

A lengthy prospectus for Blairmore Holdings written in 2006 and meant to attract high net worth “sophisticated” investors, with at least $100,000 to buy shares, is explicit about how the fund sought to avoid UK tax. At the time more than half of the fund’s 11 directors were UK nationals.

Under Panamanian law the fund was excluded from taxation derived from other parts of the world.

“The fund is not liable to taxation on its income or capital gains as long as such income or capital gains are not derived from sources allocated within the territory of the Republic of Panama,” the 2006 prospectus reads.

“The Directors intend that the affairs on the Fund should be managed and conducted so that it does not become resident in the United Kingdom for UK taxation purposes. Accordingly … the Fund will not be subject to United Kingdom corporation tax or income tax on its profits,” the prospectus continues.

Excellent. A Prime Minister whose father was a pioneer in establishing offshore tax havens criticises a comedian for using an offshore tax haven. Hilarious. Unfortunately, the joke is on us. As Jimmy Carr and David Cameron have shown, the normal rules only apply to us. The more you have, apparently, the more you feel entitled to keep it all. So we pay one pound in every four to the Exchequer, while the rich pay just 1p in every pound.

Now, where are those pitchforks? And they need sharpening, don’t they?

Note: For more on corporate tax evasion, I recommend these two reports fro the Bureau of Investigative Journalism that I came across while researching this article today — one on Vodafone’s offshore operations in Switzerland, and the other on widespread tax avoidance in Luxembourg.

Andy Worthington is the author of The Guantánamo Files: The Stories of the 774 Detainees in America’s Illegal Prison (published by Pluto Press, distributed by Macmillan in the US, and available from Amazon — click on the following for the US and the UK) and of two other books: Stonehenge: Celebration and Subversion and The Battle of the Beanfield. To receive new articles in your inbox, please subscribe to my RSS feed (and I can also be found on Facebook, Twitter, Digg and YouTube). Also see my definitive Guantánamo prisoner list, updated in April 2012, “The Complete Guantánamo Files,” a 70-part, million-word series drawing on files released by WikiLeaks in April 2011, and details about the documentary film, “Outside the Law: Stories from Guantánamo” (co-directed by Polly Nash and Andy Worthington, and available on DVD here — or here for the US). Also see my definitive Guantánamo habeas list and the chronological list of all my articles, and please also consider joining the new “Close Guantánamo campaign,” and, if you appreciate my work, feel free to make a donation.

18 Responses

  1. JAN (Cosmic Surfer) says...

    So, my friend – ready to take out those pitchforks and grinding stone? A good sharp pitchfork carried by the people makes one HELL of a political statement, don’t ya think? (My pitchfork has been sharp for a long time)

    I stand with UK Uncut in solidarity
    Take them down
    Time to take down the entire false paradigm across the planet.

  2. Andy Worthington says...

    YES! I have had a sharp – metaphorical – pitchfork for a long time too! You know, however, that I still believe the pen is mightier than the sword – or the pitchfork!

  3. Andy Worthington says...

    On Digg, cranelake wrote:

    Cameron and his cronies have been stashing their cash in offshore bank accounts for the last hundred years, so probably best if he’d have kept his mouth firmly shut.

  4. Andy Worthington says...

    cosmicsurfer wrote:

    But might be better for the people that he didn’t – let the real Cameron show his true colors and let the people act accordingly.

  5. Andy Worthington says...

    It’s certainly better that he didn’t keep his mouth shut. Now he’s invited us all to investigate his affairs, and those of ALL his Tory chums. Whoopee! I’m still reeling from the article exposing his father as one of the pioneers of offshore tax havens after Margaret Thatcher dropped all restraints in 1979.

  6. Andy Worthington says...

  7. Andy Worthington says...

    Thanks, Nick. Good illustration of Cameron’s damned hypocrisy!

  8. damo68 says...

    al them motherfuckers is as crooked as a barrel of snakes and jimmy carr is one unfunny lame fuck there only sorry cause they got cought,lol,lol

  9. Andy Worthington says...

    Thanks, Damo. I liked Simon Jenkins’ article in the Guardian. He wrote:

    My accountant once informed me that I too could inherit the earth, or at least deny a fragment of it to the taxman. He said I should become a company and pay tax only on what I took out of it. I soon discovered that I was taking everything out of it, and any saving was cancelled by fees. I also felt something unknown to Carr, Ken Livingstone, government officials and BBC executives. These were dark arts and I was doing something dodgy.

    Check out the whole article here: http://www.guardian.co.uk/commentisfree/2012/jun/21/tax-scams-legal-repugnant-jimmy-carr

  10. Andy Worthington says...

    On Digg, responding to 5, above, cranelake wrote:

    I meant better for him. Like you, I like nothing more that to see Cameron put his foot in it. And I very much look forward to seeing him and his cohorts exposed as the hypocrites they so clearly are.

  11. Andy Worthington says...

    cosmicsurfer wrote:

    And I sincerely hope the people of the UK work hard to take Cameron out of office and stick him in prison. Maybe he will get lucky and will get the use of Assange’s cell (he likes being close to fame, doesn’t he?).

    As a side – isn’t our entire 1st worlder society a horror? Where we manipulate a system in order to silence facts by throwing truth bringers in prison and allow the liars and crooks freedom and power to run the country?

  12. Andy Worthington says...

    Yes, the myth of us – the UK and the US – as “good” countries continues to be the biggest delusion of all.

  13. Sam Butler says...

    The number of people doing this is massive. Michael Owen partners and promotes one to all his friends

    ….

    http://socyberty.com/economics/manchester-uniteds-michael-owen-joins-the-tax-dodgers-team/

  14. Andy Worthington says...

    Thanks, Sam. Trinity Elite’s website is worth checking out: http://www.trinityelite.com/
    “LIFESTYLE-DRIVEN TAX PLANNING AND WEALTH MANAGEMENT,” it says. “Trinity Elite is a pioneering independent tax, accounting and wealth management company. We provide tailored solutions to high-net-worth clients. There’s no ‘off the shelf’ approach here. Just a commitment to enhancing your lifestyle with tax planning and innovative wealth strategies. We’re a group of entrepreneurs, professional sportspeople, financial and legal experts. So we know how to make your wealth work for you.”

  15. andrew says...

    What worries me is that by the time the Tories get thrown out of government most of the nations assets would of been sold and the monies distributed to their pals and cronies. That damage is irreversable. Whats needed is an Icelandic approach to this crime and that is criminal prosecution to all those suspected of depriving the Treasury of what legaly should be money for public governance and welfare. Start dealing out prison terms and the confiscation of ill gotten gains and see how they fall in line.
    To me the rubbing salt in the wounds act is this. No Tax haven, channel Islands, Leithenstein, Cayman Islands, Monaco etc can operate without the military muscle of a larger state. An example of this would be the British Bahamas that was once flooded with ‘stashed cash.’ Untill in 1972 those Islands claimed independence from the UK. Within weeks all the money flooded out from the Bahamas and guess where it went. To the Cayman Islands. Its an example of how the rich dont like to store their wealth in states with untested government and a weak military.
    So the taxes that are collected from the poor are used to buy destroyers and aircraft carriers to protect the assets of the wealthy. You just couldnt make it up.
    All the main parties are in bed together, each have had their oppurtunity to correct this immoral practice of the wealthy bleeding the country dry and have chosen to sit back and watch the the poor suffer in deprivation and servitude for the next century.
    I read an interesting post on the web today from a man who explained how he felt he was financialy well off, not stinking rich but comfortable and hadnt felt the effects of this depression. He was dismayed and annoyed that the taxman hadnt asked him to contribute more in taxation and wanted to know why there wasnt a system in place for people to contibute more if they wanted to. So while the people at the bottom of society are being targeted by this government there could well be some wealthy people who are willing to contribute more. Probally not many but i just dont like to demonise entire sections of people.
    I cant help but feel their really is a small section of international Elitists (bankers, Oil magnates, Politicians) who are running there own ambitious agenda.
    The Fascists are growing, they are feeding hatred across the globe, the poor despise the rich, the ‘indeginous hate the immigrants, Atheists versus Muslim, Extremists against Liberals etc.
    As tempting as it is to sharpen the pitchfork im going to take the Garden spade and start growing some veggies for the family for whats going to be a very difficult 20 years. Peace.

  16. Andy Worthington says...

    Thanks, Andrew. It’s very good to hear from you, and thanks very much for your analysis. You made me reflect on how solidarity can only come about through education, and that sadly far too many people these days have forgotten, or don’t know the lessons of history.

  17. Mrs Joan Mazumdar says...

    I seem to recall reading, pre David Cameron’s Party Conference speech, some political commentators were writing of what they thought he would include in that, referring to his father who was born with ‘problems to his legs’ (later ‘put right?} I was very sceptical about that. `He did mention the wonderful spirit of he disabled taking part in the para-olympics, but it appears he opted out of saying anything’ close to home’. No wonder, when his father was so involved in off-shore tax avoidance going back to the time when David Cameron was at Eton in 1982, aged 16.. (Guardian 22.6.12.) Eton was referred to by the PM as his educational ambition for all school pupils in the country. Where at x- £’s a year current fees per pupil, (day-pupils?), is the money coming from? My sons were at one of the top Public Schools,at the time, we paid all due income tax! Is the Prime Minister seriously suggesting that the Chancellor is going to meet the costs implied to attain that perceived standard? I wish it were so.

  18. Andy Worthington says...

    Thanks, Joan, for getting in touch, and for the interesting comments.

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Andy Worthington

Investigative journalist, author, campaigner, commentator and public speaker. Recognized as an authority on Guantánamo and the “war on terror.” Co-founder, Close Guantánamo, co-director, We Stand With Shaker. Also, singer and songwriter (The Four Fathers) and photographer.
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