To the City, it’s the heist of the century
In David Cameron we have a leader whose job is to quietly legitimise a semi-criminal, money-laundering economy
‘I would love to see tax reductions,” David Cameron told the Sunday Telegraph at the weekend, “but when you’re borrowing 11% of your GDP, it’s not possible to make significant net tax cuts. It just isn’t.” Oh no? Then how come he’s planning the biggest and crudest corporate tax cut in living memory?
If you’ve heard nothing of it, you’re in good company. The obscure adjustments the government is planning to the tax acts of 1988 and 2009 have been missed by almost everyone – and are, anyway, almost impossible to understand without expert help. But as soon as you grasp the implications, you realise that a kind of corporate coup d’etat is taking place.
Like the dismantling of the NHS and the sale of public forests, no one voted for this measure, as it wasn’t in the manifestos. While Cameron insists that he occupies the centre ground of British politics, that he shares our burdens and feels our pain, he has quietly been plotting with banks and businesses to engineer the greatest transfer of wealth from the poor and middle to the ultra-rich that this country has seen in a century. The latest heist has been explained to me by the former tax inspector, now a Private Eye journalist, Richard Brooks and current senior tax staff who can’t be named. Here’s how it works.
At the moment tax law ensures that companies based here, with branches in other countries, don’t get taxed twice on the same money. They have to pay only the difference between our rate and that of the other country. If, for example, Dirty Oil plc pays 10% corporation tax on its profits in Oblivia, then shifts the money over here, it should pay a further 18% in the UK, to match our rate of 28%. But under the new proposals, companies will pay nothing at all in this country on money made by their foreign branches.
Foreign means anywhere. If these proposals go ahead, the UK will be only the second country in the world to allow money that has passed through tax havens to remain untaxed when it gets here. The other is Switzerland. The exemption applies solely to “large and medium companies”: it is not available for smaller firms. The government says it expects “large financial services companies to make the greatest use of the exemption regime”. The main beneficiaries, in other words, will be the banks.
But that’s not the end of it. While big business will be exempt from tax on its foreign branch earnings, it will, amazingly, still be able to claim the expense of funding its foreign branches against tax it pays in the UK. No other country does this. The new measures will, as we already know, accompany a rapid reduction in the official rate of corporation tax: from 28% to 24% by 2014. This, a Treasury minister has boasted, will be the lowest rate “of any major western economy”. By the time this government is done, we’ll be lucky if the banks and corporations pay anything at all. In the Sunday Telegraph, David Cameron said: “What I want is tax revenue from the banks into the exchequer, so we can help rebuild this economy.” He’s doing just the opposite.
These measures will drain not only wealth but also jobs from the UK. The new legislation will create a powerful incentive to shift business out of this country and into nations with lower corporate tax rates. Any UK business that doesn’t outsource its staff or funnel its earnings through a tax haven will find itself with an extra competitive disadvantage. The new rules also threaten to degrade the tax base everywhere, as companies with headquarters in other countries will demand similar measures from their own governments.
So how did this happen? You don’t have to look far to find out. Almost all the members of the seven committees the government set up “to provide strategic oversight of the development of corporate tax policy” are corporate executives. Among them are representatives of Vodafone, Tesco, BP, British American Tobacco and several of the major banks: HSBC, Santander, Standard Chartered, Citigroup, Schroders, RBS and Barclays.
I used to think of such processes as regulatory capture: government agencies being taken over by the companies they were supposed to restrain. But I’ve just read Nicholas Shaxson’s Treasure Islands – perhaps the most important book published in the UK so far this year – and now I’m not so sure. Shaxson shows how the world’s tax havens have not, as the OECD claims, been eliminated, but legitimised; how the City of London is itself a giant tax haven, which passes much of its business through its subsidiary havens in British dependencies, overseas territories and former colonies; how its operations mesh with and are often indistinguishable from the laundering of the proceeds of crime; and how the Corporation of the City of London in effect dictates to the government, while remaining exempt from democratic control. If Hosni Mubarak has passed his alleged $70bn through British banks, the Egyptians won’t see a piastre of it.
Reading Treasure Islands, I have realised that injustice of the kind described in this column is no perversion of the system; it is the system. Tony Blair came to power after assuring the City of his benign intentions. He then deregulated it and cut its taxes. Cameron didn’t have to assure it of anything: his party exists to turn its demands into public policy. Our ministers are not public servants. They work for the people who fund their parties, run the banks and own the newspapers, shielding them from their obligations to society, insulating them from democratic challenge.
Our political system protects and enriches a fantastically wealthy elite, much of whose money is, as a result of their interesting tax and transfer arrangements, in effect stolen from poorer countries, and poorer citizens of their own countries. Ours is a semi-criminal money-laundering economy, legitimised by the pomp of the lord mayor’s show and multiple layers of defence in government. Politically irrelevant, economically invisible, the rest of us inhabit the margins of the system. Governments ensure that we are thrown enough scraps to keep us quiet, while the ultra-rich get on with the serious business of looting the global economy and crushing attempts to hold them to account.
And this government? It has learned the lesson that Thatcher never grasped. If you want to turn this country into another Mexico, where the ruling elite wallows in unimaginable, state-facilitated wealth while the rest can go to hell, you don’t declare war on society, you don’t lambast single mothers or refuse to apologise for Bloody Sunday. You assuage, reassure, conciliate, emote. Then you shaft us.
• A fully referenced version of this article can be found on George Monbiot’s website
Hosni Mubarak used the 18 days it took for protesters to topple him to shift his vast wealth into untraceable accounts overseas, Western intelligence sources have said.
By Philip Sherwell, in New York, Robert Mendick, and Nick Meo in Cairo 8:26PM GMT 12 Feb 2011
The former Egyptian president is accused of amassing a fortune of more than £3 billion – although some suggest it could be as much as £40 billion – during his 30 years in power. It is claimed his wealth was tied up in foreign banks, investments, bullion and properties in London, New York, Paris and Beverly Hills.
In the knowledge his downfall was imminent, Mr Mubarak is understood to have attempted to place his assets out of reach of potential investigators.
On Friday night Swiss authorities announced they were freezing any assets Mubarak and his family may hold in the country’s banks while pressure was growing for the UK to do the same. Mr Mubarak has strong connections to London and it is thought many millions of pounds are stashed in the UK.
But a senior Western intelligence source claimed that Mubarak had begun moving his fortune in recent weeks.
“We’re aware of some urgent conversations within the Mubarak family about how to save these assets,” said the source, “And we think their financial advisers have moved some of the money around. If he had real money in Zurich, it may be gone by now.”
The revelation came as the ruling military council, which took power as Mr Mubarak stepped down on Friday, confirmed its pledge eventually to hand power to an elected civilian government, although it did not set a date.
It also reassured allies that Egypt will abide by its peace treaty with Israel, as it outlined the first cautious steps in a promised transition to elections and “to build a democratic free nation”.
The military council’s spokesman, Gen Mohsen el-Fangari, appeared in front of a row of Egyptian military and national flags as he read a statement, proclaiming respect for the rule of law – a sign that the current system of emergency law may be ended.
But demands were growing among protesters in Cairo last night for Mr Mubarak to be put on trial for corruption.
The former president was at his family villa in the resort town of Sharm El-Sheikh. There were unconfirmed reports that he was effectively under house arrest, as the focus of protesters moved from toppling the hated ruler to seizing his fortune, although the army’s ruling council which is in charge of the country pending its transition to democracy said Mr Mubarak was beingn treated with due respect.
During the protests last week, former deputy foreign minister Ibrahim Yousri and 20 lawyers petitioned Abdel Meguid Mahmoud, Egypt’s prosecutor general, to put Mr Mubarak and his family on trial for stealing state wealth.
Crowds in Tahrir Square were yesterday hotly debating what to do with the disgraced former president, as protesters assembled themselves into clean-up squads to remove rubbish and cranes took away wrecked vehicles.
Manar Louay, 16, a student, said: “I don’t think they should put him on trial – he did keep our country out of wars. But they should take his money, it is not his.”
Mohamed El Beblawy, 60, a driver, said: “Not only should Mubarak be prosecuted, all the other thieves should be as well.”
Fatma Samy Ahmed, 50, who was part of the clean-up operation, said: “He should be executed like Saddam Hussein. Half of the population lived in poverty, while Mubarak and those around him lived in heaven.”
The intelligence source suggested that 82-year-old Mubarak may have learnt the lesson of his fellow dictator Zine El Abidine Ben Ali, the former president of Tunisia, who was forced with his family into a hasty exile in Saudi Arabia while Swiss authorities froze the family’s bank accounts.
A US official told The Sunday Telegraph: “There’s no doubt that there will have been some frantic financial activity behind the scenes. They can lose the homes and some of the bank accounts, but they will have wanted to get the gold bars and other investments to safe quarters.”
The Mubaraks are understood to have wanted to shift assets to Gulf states where they have considerable investments already – and, crucially, friendly relations. The United Arab Emirates and Saudi Arabia have frequently been mentioned as likely final destinations for Mr Mubarak and possibly his family.
The UK Treasury said it would have the power to seize Mubarak’s British assets if Egypt made a formal request – and no order had yet been made.
But Lord Malloch-Brown, a former Labour foreign minister and former Deputy Secretary-General of the United Nations, told The Sunday Telegraph: “When people are forced out of office, if they have money way beyond what they should have earned, then a country like Britain should freeze those assets pending a court action by the new government.
“Given his and his family’s strong links to the UK, it is reasonable to assume at least some of his assets are here.”
Reports emanating from Egypt claim that Mubarak had accounts with the Swiss bank UBS as well as with HBOS, now part of Lloyds Banking Group, which is 41 per cent owned by the British Government. But it is understood that Lloyds bank officials have so far found no evidence Mubarak had secret accounts with them.
Quite how much Mubarak has stashed away – and where he has hidden that fortune – in the past 30 years is open to speculation. His 69-year-old wife Suzanne Mubarak – known in some circles as the Marie Antoinette of Egypt – is half-Welsh while it is claimed the couple’s two sons Gamal and Alaa may even have British passports.
Intelligence sources indicate that the Mubarak fortune may be most easily traced via the business dealings of Gamal Mubarak, 47.
He once lived in a six-storey house in Belgravia in central London and worked in banking before setting up an investment and consulting firm in London. He resigned as a director of the company 10 years ago.
The president made his two sons the “go to” men for any companies that sought to do business in Egypt.
Kefaya, an opposition coalition that emerged before the 2005 elections to oppose the then president and his plans to transfer power to Gamal, released a lengthy investigation into nepotism, corruption and abuse of power by the ex-president and his two sons.
It said it was routine for businesses to be required to hand a cut – between 20 to 50 per cent – to Gamal or Alaa simply to set up shop. Favoured entrepreneurs who worked with the brothers were given virtual monopolies in return.
Arwa Hassan, a Middle East specialist for the anti-corruption group Transparency International, said Gamal appeared to be at the centre of the Mubarak family’s finances. Miss Hassan said: “It was really common for Gamal Mubarak to approach a successful business and say, make me a partner in your business. I’ve heard this from various sources. I don’t think it was a secret.”
Dealing with the former president will present a major challenge to Egypt’s first real democratic government, which is expected to be formed after elections.
On Saturday night the army was in charge, hugely supported by the people after promising to hand over power as soon as possible. The army was quick to promise to honour all existing treaties including the crucial Camp David Accord with Israel.
Most Egyptians spent yesterday celebrating their new freedom.
Hundreds of thousands filed through Tahrir Square, smiling soldiers let children climb onto, and even into, their tanks, and a sea of Egyptian flags waved over the heads of the crowd.
Some protesters promised to resume protests if the army does not show clear signs of allowing a transition to civilian rule. The people of Cairo were waking up to a very different world. After weeks of paralysis the economy is in chaos; expectations for the future have been raised dangerously high; and the revolution was so rapid that there is no leadership to offer a vision of a secure political future.
But the mood on Cairo’s streets was euphorically positive. Dina Sadek, 21, a student protester, said: “A month ago people were too scared to criticise him in public. Now we have won our freedom and we are proud to be Egyptian.”
Hundreds of pro-democracy supporters were arrested in Algeria, as hopes of freedom swept the Arab world.