City of London


10. Tax havens degrade our faith in democracy

For example

…The City of London Corporation,[1] the local-government authority – or massive offshore lobbying body – which controls the ‘Square Mile’ of prime real estate in central London.

The dirty details

“I’ll scratch your back, you scratch mine.”

You’d like to think this wasn’t what lay the foundations for one of the world’s most important financial districts but, sadly, avaricious deal-brokering is precisely what defines the City of London’s history: in return for City loans, sovereigns and governments granted the Corporation widespread privileges, judicial freedoms included.[2]

Add to this the power London amassed as the centre of the British Empire[3] and what emerges is a pre-eminent global financial centre. Subsequent, centuries-long attempts to incorporate the City into a unified London authority have failed:[4] the Corporation remains impervious.

Unlike other local authorities, individuals are not the only voters here, businesses can vote too.[5] Political parties, on the other hand, are absent, so with all candidates standing as independents, you might well wonder how the City can be challenged.[6] And this is where good (read ‘bad’) old Tony Blair comes in. Following his proposal, a bill was passed in 2002 that meant Labour no longer sought to abolish the Corporation but to “reform” it. If you listen carefully, you can still hear the champagne corks popping across the City.

Today, the Square Mile’s 25 electoral wards are predominantly controlled by the likes of Goldman Sachs and other financial corporations.[7] The bigger the company, the bigger the vote, with a company of 3,500 workers being allocated the maximum 79 votes. And who decides who gets to vote? The bosses, of course, who “appoint” those they think suitable. Is this what democracy looks like?

So what has this got to do with tax havens? At its simplest, it is clear that any potential regulation of the Corporation is apt to be thwarted by the Square Mile’s fiercely-protected autonomy, an autonomy it has established precisely to undermine the financial regulations put in place by the British government.

Replicate that on a global scale with the drive towards financial liberalisation and, as Treasure Islands author Nicholas Shaxson puts it, “by the 1980s, the City was at the centre of a great, secretive financial web cast across the globe, each of whose sections – the individual havens – trapped passing money and business from nearby jurisdictions and fed them up to the City: just as a spider catches insects.”[8]

Solutions

Education, education, education – this is where we begin. Recognise the Corporation for what it is – how many of us actually knew about it in the first place! In turn, realise that reform is possible. Movements like UK Uncut add to growing public awareness – get involved.

Full disclosure of political party donations, with a ban on all donations coming from secret offshore companies, trusts etc.

Guidelines are needed to overcome the culture of tax minimisation. Introducing the GAAR (General Anti-Avoidance Rules) would be a good first step to achieving this.

Key statistic

Of the 73 jurisdictions in the 2011 Financial Secrecy Index, almost half are connected to Britain and the City of London. These include the three Crown Dependencies; 7 of its 14 Overseas Territories, and 25 Commonwealth countries. Others, such as Hong Kong, enjoy enduring financial links with the City of London based on centuries of shared history.[9]

The final word

From George Monbiot[10]:

The Corporation of the City of London is the dark heart of Britain, the place where democracy goes to die, immensely powerful, equally unaccountable.

References

[1] http://www.cityoflondon.gov.uk/Corporation/LGNL_Services/Council_and_democracy/Council_departments/whatis.htm [accessed 5/11/11]
[2] http://www.newstatesman.com/economy/2011/02/london-corporation-city [accessed 5/11/11]
[3] http://www.secrecyjurisdictions.com/PDF/UnitedKingdom.pdf [accessed 5/11/11]
[4] http://www.newstatesman.com/economy/2011/02/london-corporation-city [accessed 5/11/11]
[5] http://bit.ly/rxvnYk [accessed 5/11/11]
[6] http://www.newstatesman.com/economy/2011/02/london-corporation-city [accessed 5/11/11]
[7] http://www.monbiot.com/2011/10/31/wealth-destroyers/ [accessed 5/11/11]
[8] http://www.newstatesman.com/economy/2011/02/london-corporation-city [accessed 5/11/11]
[9] http://www.secrecyjurisdictions.com/PDF/UnitedKingdom.pdf [accessed 11/11/11]
[10] http://www.monbiot.com/2011/10/31/wealth-destroyers/ [accessed 5/11/11]