John McDonnell’s Opposition Day Speech on the Panama Papers

Mr Speaker, I wish to move the motion that stands in my name and that of my Hon Friends.

On tax avoidance and evasion we need to move the debate on to the issue of the fairness and effectiveness of our tax system.

I say to the House we need to do so as constructively as we can.

The leak of documents from Panama lawyers Mossack Fonseca has provoked an extraordinary public discussion.

An entire hidden world has been brought into the light.

What it reveals is profoundly unsettling.

We now know that Mossack Fonseca sat at the centre of a vast web of tax evasion and tax avoidance.

The world’s super-rich commissioned its services to hide their income and wealth from the public gaze.

Some of them had plainly criminal intentions.

Money from the Brinks Mat robbery was allegedly laundered through a shell company set up by Mossack Fonseca.

Mexican drug baron Rafael Caro Quintero held his property through a shell company established by Mossack Fonseca.

But even if they were not criminals, many of Mossack Fonseca’s clients, if not all, had the strong intention of evading or avoiding the taxes that would otherwise be due from them.

Mossack Fonseca exploited the presence of loopholes and entire jurisdictions that favour secrecy and minimal taxation.

We can expect further news over the next few weeks and months, as the investigative work continues.

Yesterday the Panama headquarters of Mossack Fonseca was raided but ten days since the initial leak, I believe their UK offices in Hitchin have not been.

This is despite concerns being raised by the firm’s founder over the lack of due diligence the UK office performed over a company in their charge and a clear legal precedent for UK authorities to intervene.

There may well be more revelations, set to tarnish individual reputations.

The Prime Minister has done himself no favours over the last week.

A lesson for the future is that when asked a straight question, to answer straightforwardly, straightaway.

The Prime Minister could and should have come clean about his relationship to Blairmore Holdings far earlier.

Even today, we have not seen his full tax return, or that of the Chancellor.

What we are confronted with today, however, is far bigger than any individual.

At the centre of the allegations is a single issue.

The fundamental problem is not tax avoidance by this individual or that company.

These are symptoms of the disease.

The fundamental issue is the corruption of democracy itself.

At the centre of our Parliamentary system is the idea that those who levy taxes on the people are accountable to the people.

If those making decisions on our taxation system are believed to be avoiding paying their own taxes it undermines the credibility of the system.

The common understanding is also that those who live here and benefit from public services will make a proportionate contribution towards them.

The level of taxation may vary. Sometimes it is higher and sometimes it is lower.

But because we have a shared sense of fairness, we expect those with the broadest shoulders to carry the greatest burden in taxes.

But what we have seen over the last thirty years is the growth of wealth inequality on such a scale that it has undermined that basic principle of our democracy.

Figures from Oxfam suggest that the richest 1% own more than the rest of the world combined.

Great hoards of assets, in property and in financial wealth, have been built up.

On the best available measures we have - the levels of income inequality in Britain today are climbing as high as they were at the time of the First World War.[1]

The share of income going to the super-rich has risen almost inexorably for three decades.

We are returning to the levels of inequality we had before universal suffrage.

Before women had the vote.

Before the development of universal free education and healthcare.

A world before the gains of democracy brought obscene levels of wealth inequality under control and created a more humane society for the majority.

The world of the Rockefellers and the robber barons is the one we are returning to.

Immense, almost unimaginable wealth for a gilded elite but insecurity for growing numbers.

Much of that wealth is now held off-shore in secretive, unaccountable tax havens.

Twenty-one trillion dollars, equivalent to one-third of global GDP, is estimated to be hidden from taxation systems in global tax havens.

If taxed fairly, that wealth might easily raise $188 billion a year in extra taxes.

This isn’t about a few families looking to “minimise their tax bill”, as the Member for Gainsborough claimed.[2]

It is systematic.

It is an offshore world operating parallel with the world the rest of us live in.

This is not an accident.

The offshore world is being constructed, piece by piece, by multinational corporations and the super-rich.

They are aided by shady offshore operations like Mossack Fonseca.

We have to be honest about this- supposedly reputable accountancy firms here in London play their part.

PWC have, according the Public Accounts Committee, aided tax avoidance “on an industrial scale”.[3]

Deloitte have advised big businesses on avoiding tax in African countries.[4]

Ernst and Young act as tax advisors to Facebook, Apple, and Google.[5]

And just last month KPMG has had one of its tax avoidance schemes declared illegal by the High Court.[6]

All together, the Big Four accountancy firms earn at least £2bn annually from their tax operations.

Banks headquartered and operating in London have been particularly proficient in directing their funds through Mossack Fonseca shell companies.

HSBC and its affiliates created more offshore companies through Mossack Fonesca than any other bank. Over 2,300 were created in total.

Coutts, a subsidiary of RBS, created over 500 offshore companies through its subsidiary in Jersey.

Supposedly reputable companies are aiding and abetting the systematic abuse of our tax system.

We should be clear about this.

The City of London is viewed by many as a tax haven, in the middle of a dense network of havens created for the super-rich to avoid the taxes the rest of us must pay.

This is the world that the super-rich inhabit.

They live by different rules.

It is an alien world for the majority of us.

It is a world of off-shore trusts and legal trickery that would put Byzantium to shame.

A world in which it is perfectly normal to buy property in London through a company registered in the British Virgin Islands, managed by lawyers in Panama with offices in Bermuda.

A world in which citizenship and attachment to a country is something to pick and to choose depending on price.

The scandal of the “non-doms” continues, in which a few super-rich can pay a notional fee instead of the taxes that would otherwise be due from them as residents.

Tucked away in this year’s Budget was an extraordinary clause that wrote off selected non-doms entire capital gains tax bill on any gains made before April 2017.

This is not the world that most of us live in.

Most of us pay our taxes.

Contrary to the opinion of the Member for Rutland and Melton, this is not because we live in a country “low achievers”.[7]

We do so because we understand that a decent society depends on the contribution all of us make.

Without the payment of taxes, we cannot run the public services that are essential to a decent society.

We don’t have access to the kind of specialist services Mossack Fonseca and other companies provide.

We can’t negotiate with HMRC about when and how much to pay.

But for the global elite, tax avoidance is as much part of their world as the yachts or the country mansions.

This world is a corrosive influence on our democracy.

The more the super-rich can escape the burden of taxation, the more it falls on the rest of us who cannot.

It is morally wrong that a billionaire oligarch should be paying proportionately less in taxes than the migrant cleaner of his mansion.

It is a disgrace that an immense global corporation like Google should pay no corporation tax for nearly a decade, whilst small businesses are chased for tiny amounts.

And it is an affront to the basic principles of our democracy that large corporations should be able to negotiate sweetheart deals with the HMRC.

It is also a corrosion of democracy when a revolving door apparently exists between HMRC, charged with collecting taxes, and major accountancy firms whose business depends on minimising taxes.

HMRC’s last director went to work for Deloitte.

And now we find that the executive director appointed by HMRC to oversee its inquiry into the Panama leaks is a former advisor to tax havens who believes that tax is a form of “legalised extortion”.

The structures of government itself are being bent out of shape by tax avoidance.

Decisions are warped around the need to protect the interests and wealth of the super-rich and the giant corporations.

Democracy becomes corroded.

The party opposite receives more than half of its election campaign funding from hedge funds.

In public view, here in London, its leadership have made loud and repeated noises about tax avoidance.

Yet its MEPs in Brussels have voted six times, on instructions from the Treasury, to block EU-wide measures against tax avoidance.

The Prime Minister lobbied the EU Commission in 2013 to remove offshore trusts from new, tighter EU regulations on avoidance.

The Conservatives’ own record reveals they are not trusted on this issue.

Not only have they impeded efforts to clamp down on tax avoidance, these schemes directly implicate senior figures in the Conservative Party.

Several Conservative Party donors, three former Conservative MPs and six members of the House of Lords are among those with connections to companies on the books of the offshore law firm Mossack Fonseca.

As the super-rich flee their obligations to society, the burden of taxation is pushed elsewhere.

Independent assessments of tax and benefit changes introduced since May 2015 show that the poorest 10% are forecast to see their incomes fall by more than 20% by 2020.

Women will be hit hardest of all, having already borne nearly 80% of cuts introduced since 2010.

It is the poorest and those least able to carry the burden who will suffer the most under this government.

An economic system that allows tax avoidance on this scale is one in which the inventor or the entrepreneur is second to the owner of wealth.

The worker comes second to the plutocrat.

The tax-payer comes second to the tax-dodger.

It is a system where inherited wealth and privilege, not talent or effort, is rewarded.

The last Labour government took measures against avoidance.

Its measures on corporation tax avoidance are forecast by the Financial Times to raise ten times as much revenue as the present Chancellor’s schemes.

But the Panama leak must act as a spur to decisive action.

In response to the Panama leaks, the Government has stepped up the rhetoric on tax evasion but much of what has been announced falls short of what is needed or repeats existing announcements.

I remind the Ministers opposite that page 223 of the OBR report that accompanied this year’s budget included a disclosure scheme for companies operating in Jersey, Guernsey and the Isle of Man. Due to its consistent underfunding HMRC simply did not have the resources to follow up on the links of the scheme.

The Government’s proposed taskforce will report to members of the Government from a party funded by donors featured in the Panama papers. To have any credibility any inquiry must be fully independent.

A gentle word of advice to the Prime Minister. Less press releases and more action.

It is time to move on closing the tax havens, cleaning out the muck of avoidance. Step by Step.

We need an immediate, full, public inquiry into the Panama papers leaks.

We must shine a light on and start to prise apart the corrupt networks that operate through tax havens.

Part of that means creating a proper register of MPs interests. Members of this House should not be able to hide behind spurious claims of privacy.

We want HMRC properly resourced to chase down tax avoiders, with a new specialist unit dedicated to the task.

Foreign firms bidding for government contracts here should be required to name their owners.

Full, public, country-by-country reporting of earnings and ownership by companies is a necessity if fair amounts of taxation are to be charged.

The measures announced by the EU this week do not go nearly far enough, requiring only partial reporting by companies.

The turnover threshold is far too high and Labour MEP’s in Europe will be pushing to get this figure reduced to a much lower level so that many large corporations find it far more difficult to dodge paying their fair share of tax.

Banks need to reveal the beneficial ownership of companies and trusts they work with.

This means creating a public register of ownership of companies and trusts, not only companies as the government is currently enforcing.

Labour will work alongside leading tax experts to lead a review into publishing a public register of the trusts too often used to avoid paying tax and reduce transparency in our tax system.

And we must ensure that Crown Dependencies and Overseas Territories enforce far stricter minimum standards of transparency for company and trust ownership.

The government’s current programme for reform is being laughed at by the tax havens.

Only this week, after signing a new deal on beneficial ownership the Cayman Islands Premier Alden McLaughlin was celebrating a victory over the UK saying:

"This is what we wanted, this is what we have been pushing for three years for.”[8]

The truth is the government is playing into the hands of those who want to abuse the tax system.

We need serious action on enforcement.

We need, as Christian Aid and others are calling for, not central registers but full public registers accessible to all including journalists and other businesses if we are going curb the sort of activities exposed in the Panama Papers.

This package of measures is Labour’s Tax Transparency and Enforcement Programme.

We believe it offers a sound basis to take the first, necessary steps against avoidance and towards openness and transparency.

We are presenting them today as we want to see immediate effective action.

This is a test of leadership.

The leadership of the Party opposite could take this opportunity to correct the series of errors it has made.

It can join us in taking effective steps towards dealing seriously with avoidance.

People want to see the Party opposite take these steps.

Otherwise they will rightfully stand accused of siding with the wrong people.

They will rightfully stand accused of being party of the tax avoiders.

Incidentally it’s not that long ago the Chancellor of the Exchequer appeared on television to give advice on the “pretty clever financial products”, as he described them, that would allow the wealthy to dodge inheritance tax.

Some of the Conservative Party’s backbench MPs believe tax avoidance is a sign of success.

Its donors are named in the Panama Papers.

And the Prime Minister himself is a direct beneficiary of a scheme set up in an offshore tax haven through his prior ownership of Blairmore Holdings shares.

So the Panama leaks have presented a stark political choice.

Do we continue to support, as the Party opposite will continue to support, a system of corruption and avoidance?

Or do we now take the action necessary to restore fairness to our tax system, and correct the abuse of democracy?

That is the challenge, and the choice, ahead of us.

I urge the Government and all members of this House to join us in a serious programme of work to tackle the abuse of our tax system.

The Government can make a start by supporting our motion today and adopting Labour’s Tax Transparency Enforcement Programme.

I commend this motion to the House.



[1] Piketty figures for the top 5%.

[2] Edward Leigh, Hansard, 11 April 2016

[3] http://www.bbc.co.uk/news/business-31147276

[4] http://www.theguardian.com/business/2013/nov/03/deloittes-tax-savings-investments-in-poor-countries

[5] http://www.theguardian.com/business/2016/mar/07/stagecoach-loses-court-case-over-11m-tax-avoidance-scheme

[6] http://www.theguardian.com/business/2016/mar/07/stagecoach-loses-court-case-over-11m-tax-avoidance-scheme

[7] Alan Duncan, Hansard, 11 April 2016

[8] http://www.caymanreporter.com/2016/04/12/caymanuk-sign-beneficial-ownership-agreement/


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