In the 1970s, this fast-growing market began to meld with Britain’s tax havens, and others, into a seamless global network. The British havens have since acted as collecting vessels for diverse financial activity from around the globe, legal or not, often passing the accounting, banking and lawyering to companies in the City.
In tandem, the two have caused untold damage. The tax revenue lost is eye-watering: Corporations use tax havens to escape paying an estimated $245 billion to $600 billion a year. (A new global deal for a 15 percent minimum corporate tax rate will curb those losses.) Individuals stash vast sums, too.
But tax is only part of the story. The global game of deceit, played for decades by the wealthy and their functionaries in the City, has eroded the rule of law — and stripped away citizens’ trust in the system.
After the global financial crash in 2008, which exposed the extravagant excesses of the financial system, there were some efforts at reform. The “London loophole,” as the chairman of a U.S. regulatory agency, Gary Gensler, called it, was reined in. But now, as memories of crisis fade and Brexit begins to bite, the government wants to revive the City’s darker arts. “A New Chapter for Financial Services,” a key guidance document it published in July, clearly signaled a return to more permissive times. “Competitiveness” and “competitive,” code words for low taxes, weak regulation and lax enforcement, appear over 15 times.
Britain’s deference to shifty money is self-defeating. Its overly “competitive” financial center is a curse whose consequences are legion: regional inequality, an unbalanced economy, waning productivity, stalled investment, asset-price inflation and political corruption. After years of austerity, and amid food and fuel shortages, Britain can ill afford an oversize City.
But it’s the world that suffers the most. For shady businesspeople and long-serving political leaders, the offshore ecosystem provides impunity, cloaking capital and shielding wealth. Unaccountable and often untraceable, the system ensures that prosperity remains the preserve of the few. To overturn inequality and injustice, exposed so starkly by the pandemic, we must take on the havens — and the vested interests in London that protect them.