Until we fix our economic system tax evasion will continue

All part of the same system. Sean Dempsey/PA Wire

There has been an international outcry over the leaked HSBC files, which provide evidence that the bank’s Swiss arm helped wealthy clients put millions of dollars worth of assets out of the reach of the tax authorities. Naturally, politicians from all parties have responded by committing to holding anyone found guilty of tax evasion accountable for their actions.

There has also been disbelief and growing scrutiny of government watchdogs, such as Britain’s tax authority HM Revenue & Customs (HMRC) for failing to properly investigate the matter. According to Danny Alexander, the Liberal Democrat chief secretary to the Treasury,:

We quite rightly prosecute and often jail people guilty of damaging our society through conventional crime and antisocial behaviour. The way we treat systematic tax evasion should be no different. If that means jail for offenders and those that conspire with them, then so be it.

Such calls to punish elites are indeed laudable and urgent. Yet this issue runs deeper than a few bad apples. Instead it touches on the fundamental problems of corporate power and political plutocracy plaguing our economy and politics. While punishing privileged wrongdoers may be just and feel good, this should not distract from the larger need to change the very system giving birth to these actions.

Getting tough on corporate crime

The revelation that the bank helped thousands of wealthy citizens to avoid paying billions in taxes is too big a revelation for any political party to ignore. Yet, despite having the leaked data since 2010, HMRC have only prosecuted one tax evader from the list of 1,100 clients identified by them as not paying their taxes.

Politicians joined across the aisle in condemning corporate tax evasion. Not surprisingly, however, this shared anger has turned into a political game of finger pointing. The leader of the Liberal Democrats, Nick Clegg accused the former Labour government of “letting the banks run riot” under their rule. Meanwhile, Labour leader Ed Miliband blamed the present coalition government, pointedly asking: “We need to know why HMRC apparently did not act, apart from at the margins, on the information that they seem to have been given about what was going on.”

We need more than finger pointing. PA/PA Wire

Meanwhile, it is troubling that the government was failing properly to investigate the elite customers of HSBC, all the while cracking down on poorer benefit cheats. This contradictory treatment of the haves and have nots did not escape notice. To this effect, MP Margaret Hodge said:

“If this had been benefits scroungers, they would have been queuing around the courtrooms to have their court appearances. Because it’s relatively well off people, there’s only one person who’s been taken to court. We want to demonstrate to others that you will not get away with avoiding or evading your tax.”

These sentiments reflect the belief that there are two systems of justice – one for the rich and one for the poor. The government’s commitment to investigating the scandal is symbolic of their efforts to show that no one, no matter how wealthy or power, is above the law.

Just a few bad apples?

Present is a broader popular desire to hold economic and political elites criminally accountable for their socially harmful actions. This goes beyond one scandal or the nefarious behaviour of certain financial actors. Politically, this can also be seen, for instance, in growing calls to arrest notable Western leaders like Tony Blair for “war crimes” for their role in the invasion of Iraq.

However, there is an underlying danger of focus being put on punishing the “few bad apples” and avoiding more systematic changes. This public finger pointing distracts attention from a more profound need to change the ideologies and systems of power that give rise to any offences being committed in the first place.

Tackling the causes

What is required is something greater than just punishing elites. These necessary punitive measures must be matched with an equal commitment to decreasing the underlying factors driving tax evasion and avoidance. In the same way that benefit fraud is often regarded as a failure of the welfare system, tax evasion and avoidance should be viewed in the context of a broken system of economics pursued by the present UK government.

Austerity has directly contributed to tax evasion and avoidance. Within Europe these policies have made it easier for corporations to use offshore accounts and base themselves in countries with lower tax rates, rather than closing tax loopholes.

And in Britain, austerity measures have led to cutting funds for HMRC and laxer tax avoidance laws, thus limiting the ability of tax authorities to regulate and punish tax offences. This is especially troubling in light of the fact that according to one recent report, the UK will lose approximately £73.4 billion from tax evasion in 2013 and 2014 alone, more than triple the government’s official estimate of £22.3 billion.

The HSBC scandal should be a wake up call that this challenge is much more significant than stopping a few corporate bad guys. Instead, it is an indictment on the growing corporate influence and economic ideology of austerity that created the conditions for tax evaders and avoiders. As Ronen Palan has argued, “the HSBC Swiss tax scandal is part of a global pattern of avoidance”.

Changing the system

The rightful indignation over HSBC is a welcome reaction in a political climate that all too often excuses the worst excesses of the most privileged, while condemning those of the most marginalised. Yet, in this heightened emotional atmosphere, there must a concerted effort to not let this opportunity for fundamental change go to waste. To forego political and economic transformation for the satisfying but empty gesture of corporate show trials.

This is not to say that those responsible for tax evasions should not be prosecuted to the fullest extent of the law. Yet we must also look beyond just making it harder for those on top to take advantage of a system that already favours them. We must change the very playing field itself.

Politicians tactically playing into this popular anger are just as threatening as those they once supported and now increasingly condemn. When the dust settles, they will likely revert to championing the elitist conditions that permitted these actions.

It is not enough, then, to just put privileged abusers of the system on trial. It is also necessary to put the system itself on trial. The recent anti-austerity movements in Greece and Spain exemplify this crucial challenging of austerity as well as the financial and political regimes which support such policies. Across Europe and the world, the HSBC scandal similarly shows the importance of changing the corporate system not just punishing its criminals.