The ‘Panama Papers’ story broke less-than two weeks ago and sent shockwaves across the world. 2.6 terabytes of data, equating to 11.5 million documents, covering 40 years of operation by Panamanian law firm Mossack Fonseca, were leaked to the press in 2014 by an anonymous source. It took the collaboration of hundreds of news outlets, co-ordinated by the International Consortium of Investigative Journalists (ICIJ), to sort through the data. Last week, in a timed mass release, the media broke the story.
In the short time since the news went public the world has already seen change. Much of that has been centred in the UK, thanks to the fact that over half of the tax havens named in the data leak are British-administrated territories. But it was the fact that David Cameron’s father, Ian Cameron, was named in the papers as having registered an offshore company which really sparked the ire of the British people.
Let’s take a look at what impact the ‘Panama Papers’ have already had on the UK, what’s due to happen in the near future and what could happen in the long term.
The biggest data leak in history contained 11.5 million documents from law firm Mossack Fonseca. While the world has largely reacted with anger at the contents of the documents, many of the issues exposed by the papers are those of tax avoidance.
This is a completely legal practice, through which companies and individuals minimise the amount of tax they legally have to pay. Conversely, tax evasion is an illegal practice involving the hiding of assets from the relative tax authorities. Both practices can be facilitated by the use of offshore accounts. While tax avoidance isn’t illegal, there has long been an argument over whether all forms of tax avoidance are ethically and morally just.
Most of the issues that have been raised since the data leak are not about whether the figures and companies in question have acted illegally, but whether their actions have been morally acceptable. There have also been arguments regarding conflicts of interest.
The week beginning Monday 4th of April could arguably be described as David Cameron’s worst week in politics. The Prime Minister came under heavy fire for two issues; firstly the UK’s stance on tax avoidance and the alleged lack of action taken to clamp down on the practice and, secondly; his own personal tax affairs.
More than half of the offshore havens named in the Panama Papers are British-administrated territories or crown dependencies. David Cameron and George Osborne have claimed that ‘no government has done more than this one to crackdown on tax evasion and aggressive tax avoidance’, an assertion the opposition refuted. It is estimated by official statistics that the tax gap, between tax owed and tax paid, is £34 billion per year.
However, as the Guardian reports, the UK tax gap could be significantly higher; ‘MPs on the public accounts committee said this figure fails to take into account the losses to aggressive tax avoidance schemes of the kind previously criticised by the prime minister. Labour puts the tax gap at £120bn.’
In response to the latest questions regarding the UK’s crackdown on tax havens, David Cameron has revealed that the government had closed tax loopholes which generated £12 billion in extra revenue, while the number of HMRC compliance staff increased to 26,798 in 2015 compared to 25,000 five years prior. Cameron also pointed to the additional £800 million granted to HMRC in the summer Budget.
David Cameron Publishes Tax Return in Bid to End Questions over Tax Affairs
The issue of David Cameron’s personal tax affairs has by far been the most hotly-debated topic to emerge from the ‘Panama Papers’ in the UK. It all started when some of the leaked documents showed that David Cameron’s late father, Ian Cameron, used Mossack Fonseca to register an investment company, Blairmore Holdings Ltd, offshore.
A 2006 prospectus for the company claimed that ‘the affairs of the Fund should be managed and conducted so that it does not become resident in the United Kingdom for United Kingdom taxation purposes’. Eventually, after multiple statements from Downing Street in which No. 10 slowly revealed information, the Prime Minister was forced to admit that he had held shares in the company, which he sold for £30,000 shortly before winning the General Election in 2010. Because the value of the shares was below the tax threshold, there was no tax owed.
Arguments continued, however, despite the Prime Minister’s omission. Many were confused by the nature of Ian Cameron’s company, which used what the Guardian called ‘an obscure financial instrument’ called bearer shares. These shares do not hold the name of the owner and work in a similar way to banknotes; whoever holds the share owns it. Many companies have abolished bearer shares because they can potentially be used for money laundering purposes.
Eventually, after admitting he could have handled the situation better, David Cameron became the first Prime Minister to publish his tax return summaries for his time as leader of the country in an attempt to improve transparency. This did not entirely have the effect Cameron may have hoped, as commentators raised issue with two payments of £100,000 gifted to Cameron by his mother, Mary Cameron.
These payments were shortly after Ian Cameron died and left the Prime Minister £300,000, causing many to speculate that the payments could have been a way of avoiding inheritance tax. If the Prime Minister had inherited £500,000 in one lump sum he would have been liable to pay tax of around £80,000.
However, after a recent Prime Ministers Questions, the focus on the Prime Minister himself seems to have shifted to the UK’s tax practices in general. The publication of the Prime Minister’s tax returns and widespread belief that suggestions other senior figures will be made to do the same seems to have satisfied public anger regarding the matter.
The dwindling pressure on the Prime Minister to resign has helped to improve investor sentiment of late. The main concern was that, if the Prime Minister did listen to the public outcry and step down, a pro-‘Brexit’ MP such as Michael Gove or Boris Johnson could take his place, seriously undermining the political weight of the ‘Leave’ campaign.
Even some of those who were unsupportive of David Cameron, or who criticised his handling of the situation, cautioned against forcing him to resign. Several journalists noted with interest that while Labour party leader Jeremy Corbyn criticised the Prime Minister’s actions, he never called for Cameron to step down.
It is not just David Cameron who has been the target of media and public attention over the past two weeks. Several other prominent UK politicians have become embroiled in the scandal, either through their comments or actions.
George Osborne eventually published his tax return, just days after stating he had no intention to. A series of statements from the Treasury slowly changed the Chancellor’s apparent position on the matter, until Downing Street announced that Osborne would indeed release his tax records. It is unclear whether Osborne decided to it, whether he was persuaded to by David Cameron, or whether he was ordered to. Cameron claimed it was right for the people in charge of the nation’s finances, as well as those aspiring to be future Prime Ministers, to show that they could act responsibly and with moral integrity.
Publishing the tax return raised more questions over Osborne’s finances, however, after revealing that he earned dividends from shares in the family wallpaper company, Osborne & Little, despite the company not having paid any corporation tax.
Labour party leader Jeremy Corbyn became the subject of jest after a delay in publishing his tax return because he had sent HMRC ‘the only copy’. Once published, the document showed that the Labour leader had paid a £100 fee for filing the return a week late.
Labour MP Dennis Skinner was ordered to leave Parliament after referring to the Prime Minister as ‘Dodgy Dave’. Skinner was asked to withdraw the ‘unparliamentary’ comments, made during Prime Ministers Questions, but was then ordered to leave the House after refusing to do so.
Sir Alan Duncan MP, a Tory politician, was forced to clarify comments he made in Parliament, which sparked public outcry after he seemed to refer to those who weren’t wealthy as ‘low achievers’. Speaking in defence of David Cameron, Duncan claimed that people were only really angry because ‘they hate anyone who has got a hint of wealth in them’ and added that if the Prime Minister didn’t defend himself, ‘we risk seeing a House of Commons which is stuffed full of low-achievers who hate enterprise, hate people who look after their own family and know absolutely nothing about the outside world.’
The scandal and fury sparked by the data leak seems to have mostly blown over now, although developments continue. The strong reaction from the British public seems to have motivated the government to implement real change in the UK’s tax legislation. Whether or not the recent publishing of tax returns by high profile figures is a trend that will continue remains to be seen, but we could certainly see stronger tax laws in the UK, especially considering the EU has accelerated plans to make companies with a turnover in excess of €600 million make their tax details publicly available.
‘Brexit’ uncertainty will continue to dominate the Pound, but Sterling exchange rates have been spared a potential blow from the replacement of a pro-EU Prime Minister with an anti-EU one. With the EU campaigns having been chosen and the ‘purdah’ period, in which the government can’t legally intervene in the referendum, now drawing close, many investors will be breathing a sigh of relief that David Cameron remains in power.
Commentators will be eagerly awaiting the next set of opinion polls to see how the scandal has affected public opinion of the Conservative party. Many media outlets have credited Jeremy Corbyn with ‘scoring hits’ during the latest Prime Minister’s Questions, so it remains to be seen whether the Labour party has received a boost in popularity in the wake of the scandal.
It also remains to be seen how much of an impact the ‘Panama Papers’ will actually have. While many nations and public figures have announced a desire or intention to do more, there is always a chance that those policies could get shelved later down the line for a number of reasons. However, what is clear is that there is a strong appetite for global change and tax evasion could very well become a key focus of the next UK general election campaigns.
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