Friday 5 March 2010
Johann Hari: The worst thing about Ashcroft is that his behaviour is legal
Contrary to the claims of apologists, there is nothing inevitable about tax exiles
In the sudden slurry of revelations about Michael Ashcroft, are we missing the bigger picture – and a far larger scandal? The immediate disgrace is plain enough. The billionaire Ashcroft has jostled his way into the heart of the Conservative Party, and altered the shape of British politics, with money hoarded away in a tax haven. He evidently finds the idea of paying a small share of his fortune to keep his country's schools and hospitals and defence running so abhorrent that he would rather stash the vast majority of his cash in the bitterly poor tax haven of Belize. (He pays no tax at all there, despite the fact that 30 per cent of the country's children go hungry.) And he did it all disingenuously: when he was scraped into the House of Lords on William Hague's recommendation in 2000, he gave a "clear and unequivocal assurance" he would become a "permanent" resident in Britain.
The Conservative Party has been engaged in a 10-year cover-up that tells us a lot about how they would govern the country. Since he became leader of the Party and accepted more than £10m from Ashcroft, David Cameron has had a clear choice. He could have done the patriotic thing and revealed publicly that Ashcroft was avoiding paying £127m in taxes – the sum that would have accrued to the British people if he had kept his send-me-to-the-Lords pledge. Instead, Cameron chose to protect Ashcroft and his private interests with a wall of obfuscation. It's an extraordinary insight into the man who wants to be our next prime minister. Made to pick between the national interests of the British people and the sectional interests of the super-rich, he choose the over-class – and we should assume he would do the same in Downing Street.
So, yes, that's a scandal in itself. But in the focus on these shenanigans, we can miss the bigger problem: that under both Labour and Conservative governments, this revolting behaviour is perfectly legal. The bottom 99 per cent of us pay our taxes on time and in full – while the richest have been allowed to get away with this insult. Ashcroft is not alone. The invaluable Tax Justice Network has calculated that rich individuals "avoid" £13bn a year and rich corporations £12bn. (Indeed, a third of Britain's top 700 companies haven't paid any tax at all.) That's enough to double the education budget – or to pay off Britain's entire deficit in seven years without a single dent in public spending.
Before we figure out how this happened, we need to deal with the excuses offered by tax exiles. They often say they earned this money all by themselves, so why should they hand it over to the rest of us? But none of these men could have made a penny if they didn't live in a sophisticated state where they were given education, healthcare and a transport system, and kept safe from crime and fire and foreign attack. All of these services are paid for collectively, through the tax system. Tax exiles want all the benefits of an advanced society, without paying for it to keep going. There's a technical definition for this in the natural sciences: a parasite.
How did this anti-social, anti-patriotic behaviour become legally acceptable? The distinction between a "domicile" and a "tax resident" was created in Roman law. A domicile was a "true" Roman – born and bred there – while a tax resident was a mere colonial, who could be asked to pay more. It was a way of distinguishing between Us and Them. This distinction made its way into British law – and in the 20th century, it was turned on its head. The very wealthy lobbied to be demoted from domiciles to tax residents – and said they should pay less. Since these tycoons made party donations, owned newspapers, and spoke louder than the rest, the politicians gave in.
It doesn't have to be this way. Contrary to the claims of their apologists, there is nothing inevitable about tax exiles. The Tax Justice Network and the brilliant financial expert Richard Murphy have laid out a clear road-map for how to end them.
Within Britain, there are two types of tax avoider, and they need to be dealt with differently. First, there are the British citizens who claim to be only semi-resident here, and therefore say they should pay little or nothing. There is a simple way to shut this down – and it is already put into practice every day in that socialist utopia, the USA. If you are an American citizen, you pay taxes to the US exchequer, wherever you live in the world. You are allowed to earn up to $50,000 abroad tax-free, and after that, you pay American taxes. You can't be a tax exile. It's impossible. You want to be part of the American club, you have to pay the membership dues. If you don't want to contribute, you have to renounce your citizenship – a wrenching move that only 500 deeply odd and unpatriotic rich people choose every year. Britain could do the same with a click of our legislative fingers. It would abolish overnight the concept of a tax exile.
The second group are non-British citizens who come here and refuse to pay taxes on their global fortunes. Under New Labour, this group has been so cravenly courted that the IMF actually classified the British Isles as a tax haven for foreigners until 2008. Now, they pay a paltry £30,000 a year to count as a non-dom – and then nothing. For people so rich, it's the equivalent of handing us the small change down the back of their settees. They drive up prices for us all: we have to compete with people for (say) property in London who pay no tax. They can be dealt with just as easily. People who come for short stays – to be a student, or on secondment – shouldn't have to reorganise their entire tax affairs when they come; that would discourage visitors. But if you stay here for three years or more, you are plainly relying on British public services – so you should have to pay full taxes on your global fortune to us, or go.
And for the tiny number of the super-rich who would still leave and choose eternal boredom in Monaco or the Cayman Islands? They'd be no great loss, but we should still chase them by leading a global crusade to shut down the tiny number of places that allow them to warehouse their fortunes tax-free. It's not hard when there is the political will: after 9/11, even the most shadowy tax haven shut down al-Qa'ida-linked bank accounts within a week. When Monaco refused to co-operate with France on tax laws, Charles De Gaulle surrounded it with troops and cut off the water supply.
We are constantly being told by a chorus of conservatives that the financial crisis caused by their market fundamentalism can only be solved by slashing back spending. But this is unnecessary if only the overclass start to pay their taxes. Look at the country we are told is the exemplar of over-spending, Greece. In fact, it suffers the worst tax collection rate in the democratic world. According to a study by Professor Friedrich Schneider, some 25 per cent of taxes are not paid, making up $20.5bn a year. If Greece ended this culture, its financial situation would look very different. Why don't we hear this story, instead of the nonsense that they pay their teachers and nurses too much?
So why aren't elected governments opting for this sensible, simple solution, supported by 78 per cent in a recent poll? The tiny number of super-rich talk louder than the rest of the population. Their money warps our politics: Labour has non-dom donors too. So the scandal isn't just that Michael Ashcroft has captured the Conservative Party. It's that his repulsive tax tango has been legal under Labour as well – and we all have to go on paying for this parasitism.
To read Johann Hari's expose of the leading American conservation groups - and how they sold out the environment - click here.
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