The UK government has stalled on supporting public registers of beneficial ownership in British overseas territories and crown dependencies, but it cannot put off change forever.
Tax transparency is back on the frontpages this week as NGOs are calling on King Charles to make an intervention ahead of his coronation on Saturday, May 6.
Alex Cobham, chief executive of Tax Justice Network (TJN), wrote an open letter to the monarch on Sunday, April 30, calling on him to demand the break-up of “the UK’s network of tax havens”.
“The UK, the crown dependencies and the British overseas territories are collectively responsible for facilitating nearly 40% of the tax revenue losses that countries around the world suffer annually to profit shifting by multinational corporations and to offshore tax evasion by primarily wealthy and powerful individuals,” wrote Cobham.
“This makes the UK and its network of satellite tax havens the world’s biggest enabler of global tax abuse,” he argued.
Of course, not everyone thought the open letter to the monarch was a good idea. Dan Neidle, director of Tax Policy Associates, tweeted in response: “On balance I’m unconvinced unelected monarchs should set tax policy.”
If the UK is going to take the lead, the House of Commons is best placed to make this decision rather than a reigning monarch who is supposed to stay out of politics. After all, elected politicians have a democratic mandate.
Mandates without mission
The TJN letter was also addressed to Prime Minister Rishi Sunak. However, the UK government shows little appetite for imposing such registers on the Channel Islands, while the British overseas territories continue to drag their feet on this issue.
“The UK is now standing in the way of the march of progress,” wrote Cobham.
Meanwhile, Australia may be about to take the lead with its plans for public country-by-country reporting (CbCR). Not only is Australia moving towards mandatory public reporting, the new rules would cover global activities.
But it wasn’t so long ago that the UK was taking the lead on tackling financial secrecy. Former Prime Minister David Cameron and Chancellor George Osborne supported greater tax transparency following the 2015 election until the Brexit vote forced a change of leadership.
During this time the UK was the first country to adopt both a public register of beneficial ownership and CbCR. This is why many tax justice groups see 2015 to 2016 as the time when the UK was setting an example for the rest of the world.
UK politics was left reeling for years after the 2016 EU referendum. The Brexit negotiations took over the political agenda, along with battles in Parliament. It looked like the issue of financial secrecy would disappear from the agenda for the foreseeable future.
However, the UK committed to backing fully public registers in the three crown dependencies and 14 overseas territories in a historic vote in May 2018. That vote was a shock not least because tax transparency had slid down the political agenda.
Andrew Mitchell, Conservative member of Parliament (MP) for Gedling, and Margaret Hodge, Labour MP for Barking, were the two key figures in securing the public registers amendment to the Sanctions and Money Laundering Act (2018).
However, Hodge has said she will not be standing again at the next general election. It’s possible that the Labour Party will push to make her a peer in the House of Lords after 30 years of service in Parliament.
Hodge and Mitchell have set a tough act to follow in Parliament. It’s unclear who – if anyone – will continue Hodge’s work. This is still a major loss for tax justice campaigners. But the issue of financial secrecy is not going away.
Transparency may make some people in tax uncomfortable because of the litany of scandals we’ve seen in the last decade. However, greater access to information can help taxpayers and not just tax authorities and policymakers.
Imperfect information is one of the main kinds of market failures. This is economics 101. A market economy works best with greater transparency because individuals and businesses can make better decisions with more information.
Furthermore, we may have never had tax scandals such as the Paradise Papers if companies had needed to factor in the reputational risks of aggressive tax planning. Today, all tax professionals have to take into account risk exposure as part of their strategies, and this is better for everyone.
