Johann Hari: Here's one challenge Brown can take on... shutting down the world's tax havens

The populist potential of a crusade to make the mega-rich pay their fair share is vast

Monday, 25 June 2007

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The political planets have aligned this week in such a sweet formation that they provide Gordon Brown with an opportunity to finally act on his better instincts. Our new premier's political beliefs were shaped and smelted in the Scottish hills by a hatred of extreme inequality. Now he is ascending to the Prime Ministership at the very moment when anxiety about Britain's soaring inequality is causing a sweat among the middle-class Middle England bloc that he needs to woo.

The Financial Times warns that the gap between the super-rich and the rest "is now greater than at any time since the 1930s" and that "it is the incomes of the top 0.1 per cent that have grown most strikingly." Even the Daily Mail howls on its front page: "Wealth divide 'could lead to rioting'."

The gap that is groaning loudest now is between the haves and the have-yachts, as the middle-class struggle to keep up with prices artificially inflated by the mega-wealthy. 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. The result? Of the 400 people in Britain earning more than £10m a year, only 65 pay any income tax at all. Billionaires are paying less tax than the cleaners who scrub their offices.

This soar-away at the top has consequences all the way down the economic chain. 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 - and they are squealing with politically important pain.

To picture what is happening here, the Dutch economist Jan Pen came up with a useful metaphor. Imagine that everybody in the British economy was to march past you in an hour-long parade, and that the marchers are organised by income, with the poor at the front and the rich at the back. Now imagine that the height of the people marching by is proportional to their height, so a person with average income will be average height, a person earning half the average income will be half the average height, and so on.

What would this parade look like? Most of us would picture a parade where people slowly, steadily got taller. We'd be wrong. The writer Charles Crook summarises what would really happen: "As the parade begins, the marchers are tiny. For five minutes or so, you are peering down at people just inches high. Ten minutes in, the full-time labour force has arrived: to begin with, mainly unskilled manual and clerical workers, standing about waist-high to the observers. And at this point things start to get dull, because there are so very many of these very small people. The minutes pass, and pass, and they keep on coming."

Only in the last 20 minutes would you be able to look anyone in the eye - and then, only for a fleeting moment because, suddenly, "heights begin to surge upward at a madly accelerating rate. Doctors, lawyers, and senior civil servants 20 feet tall speed by. Moments later, bankers, stockbrokers - peering down from 50 feet, 100 feet, 500 feet." And then in the last second you see the unimaginably huge giants: the great untaxed. The very sole of their shoes is hundreds of feet thick.

In the past decade, the giants got even bigger. In 1997, the richest 0.1 percent would have been 1,380 feet high. Now they are way over a mile, and soaring further beyond the clouds every day.

It is true that the Government has (thankfully) mildly redistributed wealth through tax credits - but it has only taken from the middle class and given to the poor. The giants at the end of the parade have been required to give nothing.

So what can Brown do to bring us all closer to a normal height? The populist potential of an international crusade to make the mega-rich pay their fair share is vast. 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.

A British Prime Minister has extraordinary leverage here. 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. This is the greatest possible bargaining chip with other leaders: you give up your tax havens, and we're prepared to close ours.

A campaign to bring the super-rich back into taxation could also have many more popular prongs. The trade unions are calling for a windfall tax on private equity firms, to make up for the tax giveaway they have enjoyed for too long. Development agencies are calling for the 'Tobin Tax', which would tax international currency speculation by just 0.1 percent, but raise $200bn a year - enough to give every African child a free education.

Blairites like the last-place deputy leadership contender Hazel Blears have warned that this would be an abdication of the centre ground, and an "attack on aspiration". It's exactly the opposite of the truth. This is the new centre ground of British politics, where even the moderately wealthy can sweatily see that a grossly unequal society is dangerous for us all. Far from being an attack on aspiration, it is an attempt to spread it to far more people, using all those wild profits stashed in Bermuda to create better schools and hospitals for everyone.

But the super-rich giants speak very loudly, and they boom in Brown's ear that he will bring catastrophe if he dares to ask them to pay even a fraction of the tax level you and I pay. They will threaten to rain newspaper campaigns and economic disinvestment on his head, and to withhold their political donations. This has kept him cowering for the past decade.

Now he has the keys to No 10, will Brown have the courage to see beyond their intimidation and seize the new mood - before it turns on him, too?

j.hari@independent.co.uk