DAVID Cameron’s personal use of an off-shore investment fund (i.e. one set up specifically to avoid paying UK corporation tax) may or may not prove his political undoing. The jury is still out.

Cameron’s defence is that he did pay the requisite income tax on the dividends he received. However, the point surely is that a prime minister and political leader who made a major public commitment to end secrecy in the use of such offshore funds has been found – through a well-placed leak – to have used just such a financial vehicle to hide his own investments. And that, folks, is hypocrisy with a capital H.

Back in 1913, there was another financial scandal involving British Cabinet members. Those exposed – including David Lloyd George, then Chancellor of the Exchequer, and Sir Rufus Isaacs, the Attorney General no less – were accused (correctly) of insider share dealing using information privy to government ministers. Sadly, the culprits managed to wriggle out of the consequences on a legal technicality, while the leading whistle-blower was actually fined for criminal libel.

A Times leading article (on June 19, 1913) summed up this episode perfectly. I quote in full what the leader writer said because it captures to a tee the current dilemma for David Cameron:

“A man is not blamed for being splashed with mud. He is commiserated. But if he has stepped into a puddle which he might easily have avoided, we say that it is his own fault. If he protests that he did not know it was a puddle, we say that he ought to know better; but if he says that it was after all quite a clean puddle, then we judge him deficient in the sense of cleanliness. And the British public like their public men to have a very nice sense of cleanliness.”

David Cameron stepped into the puddle in November 2013 when he wrote a letter to Herman Van Rompuy, the then president of the European Council. Mr Cameron was concerned that the EU was about to crack down on the use of anonymous offshore trusts to hide financial dealings from public scrutiny. Instead, the British Prime Minister argued that trusts used for inheritance planning should be exempt from the new EU law.

Let me quote Mr Cameron’s letter: “It is clearly important we recognise the important differences between companies and trusts. This means that the solution for addressing the potential misuse of companies, such as central public registries, may well not be appropriate generally.”

I’ll decode. Cameron is telling Van Rompuy that it is OK to force tax havens to expose the beneficial owners of companies. But, er, can we please not expose the beneficial owners of family trusts.

These are the very kind of secret trusts – I use the plural advisedly – in which his stock-broker father was active, and from which David Cameron subsequently benefited financially. Note: there was nothing illegal in any of this. As that 1913 Times leader said, a man can’t be blamed for being splashed by mud. But if he steps into the puddle of his own volition, that’s a very different matter. And when he says it is actually a very clean puddle, we know he is having us on.

The issue here is trust. Cameron has presented himself as the champion of clean government and the scourge of offshore tax havens. He has, to be truthful, taken a very public stand against the way these offshore jurisdictions have been able to hide the ownership of assets, and thus (potentially) evade and avoid paying due taxes. But bluster can often be a means to hiding a guilty conscience. If David Cameron is to convince us that he was accidentally splashed with mud, he needs to turn bluster into resolute action to end the scandal of offshore tax havens once and for all.

But here we come to the nub of the issue. Those “offshore” tax havens are nothing more than name plates. The dosh does not actually reside in Panama, the Cayman Islands, or in Bermuda. Ultimately this secret wealth is kept in the form of expensive property in London, in shareholdings of Western companies, and in secure bank accounts everywhere from Switzerland to Frankfurt. In other words, tax havens like Panama are merely the camouflage protecting the big Western financial hubs, especially the City of London and New York. Minnows like Panama allow the sharks in the City to keep their hands clean.

According to the authoritative Tax Justice Network, a UK-based NGO, the top ten nations with the greatest financial secrecy include Switzerland, Luxembourg, the United States, Germany and Japan. Panama does not even make the top ten culprits. Perhaps the biggest and most successful corporate tax haven is the American state of Delaware, where there are nearly one million registered companies for every citizen. Dense corporate and ownership secrecy laws in Delaware have allowed global firms to avoid and evade billions in legitimate taxation.

Just how much global wealth is shielded by overt tax havens? Estimates vary widely, for obvious reasons. One figure that has been widely quoted in the media in the past week is $7.5 trillion. This was calculated by the economist Gabriel Zucman in his 2015 book The Hidden Wealth of Nations. However, the Tax Justice Network puts the figure at between $21 trillion to $33 trillion. Zucman calculated only portable financial assets while the Tax Justice figure includes fixed property, art holdings and gold. For comparison, global annual GDP runs at about $77 trillion.

This is no aberration. This is how global capitalism works. Corporate entities, nation states and the politicians who protect them, routinely shield themselves from paying tax. Certainly personal greed is involved, but that is not the main motivation. The competitive system forces corporate entities to reinvest constantly to make profits and survive. Anything that subtracts from the pool of investment capital – be it wages or taxes – must be minimised, by fair means or foul.

Which brings us back to David Cameron. His abiding sin is not really that he benefited from his father’s use of tax havens designed to escape paying corporation tax. After all, Chancellor George Osborne is openly committed to driving down UK corporation tax rates to near zero. Cameron’s sin is in providing intellectual and political cover to the great corporate tax dodge.

If David Cameron was serious about ending the secrecy involved in offshore tax havens he could begin tomorrow in London by making it illegal to own property without specifying the beneficial owner. Much of the world’s secret cash store has ended up parked in expensive London property holdings – which drives up local house prices and forces ordinary Londoners from the inner city.

No less than one in 10 of the 31,000 tax haven companies that own British property are linked to Mossack Fonseca, the Panama-based law firm at the heart of the current scandal. Of these, 700 properties are owned through anonymous bearer shares, raising the suspicion of criminality. Such anonymity should be eliminated forthwith – on pain of confiscation by the Treasury – through an amendment to the Finance Bill currently going through parliament.

Now that would make a splash.


Cameron aims to deflect pressure of Panama Papers scandal with new tax-avoidance legislation


The National View: The PM should have come clean over his tax haven shares much sooner