The revelation of the leaked Luxembourg tax files and the related reporting of the extent of the tax avoidance industry in the UK should come as little surprise. Tax legislation, and its enforcement in the UK, has been based on a school of thought that encourages the unchecked forces of supply and demand to reign supreme. This has, in turn, infused business culture in Britain.
Current government tax policies are not only complicit in tax avoidance havens like Luxembourg, but they allow corporate UK to set every aspect of the UK’s tax agenda. The consensus in Westminster seems to be that whatever is good for business in Britain is also good for Britain as a whole.
Indeed, the real revelation of tax avoidance in Britain today is not what is happening in Luxembourg but the 2013 finding by the Tax Justice Network. In their secrecy or tax haven index (which lists Luxembourg second), a much more startling inclusion is that of the UK in the top 20. In fact, if you include all territories that are legally part of the UK, Britain would top the list. Just one such British overseas territory, the Cayman Islands, is 4th on the list, and two places ahead of the US. The others are Jersey (9th), Bermuda (14th) and Guernsey (15th).
What is perhaps more alarming is that, despite all the current UK tax avoidance opportunities – tax havens being just one – and UK corporate tax rates falling three times since 2010, wages continue to fall and inequality to rise across the country.
The ascendancy of neo-liberal economic theory in the UK, with all its theoretical proofs for efficiency, stability and fairness, has never been more undermined by what is going on in Britain today.
The economic and social problems faced seem very different from the rapid increase in economic growth, income equality and social progress in the 1950s, 1960s and even large parts of the 1970s. Since the early 1980s, the received economic wisdom in Britain has been that what is good for corporate business is good for UK plc. Inspired by the dominant academic theories of economics, entrenched under a Conservative government and then reinvigorated by New Labour, the prevailing philosophy is that economic growth and stability in Britain is reliant on corporate deregulation and freedom, open and unregulated markets, privatisation of national assets – and the lowest possible corporate tax rates.
Known variously as neo-liberalism, neo-classical economics, market fundamentalism or the Washington Consensus, this ideology of small government and the unfettered market remains dominant despite the global banking crisis in 2007-2008 and the recent reports that debt in the world economy have now reached a record high.
Any debate about tax havens such as Luxembourg or the Cayman Island needs to focus on the growing wealth and power of the corporate elite in the UK and its implications for economic growth and social stability. The tax avoidance industry is just one example of how such an elite has captured tax legislation and the economic theory that supports it.
If it is accepted that the UK economy functions through offering lucrative tax incentives to multinationals, if unchecked corporate power is allowed the freedom to find profit anywhere, then the neo-liberal ideology will continue to be dominant. And all the lessons of history of the danger of unregulated markets, especially the near collapse of 2008, will have been in vain.