In July 2017
director John Christensen and Michael
Oswald’s latest film, The
Spider’s Web: Britain’s Second Empire was premiered at the
Frontline Club in London. It has since had several screenings in London and public screenings can be organised from
November onwards. This fascinating
interview just published in Deutsche Wirtschafts
Nachrichten explores what inspired co-producers Michael Oswald and John Christensen to
make a film documentary about London’s role as the world’s pre-eminent tax
haven. Oswald and Christensen also talk about how London might
develop once Brexit kicks in, exploring the possibility of deepening the City’s
tax haven role through further tax cuts for the rich and more rolling back of
financial market regulation and other social protections.
The key
inspiration, according to Michael Oswald, was Nicholas Shaxson’s
best-selling Treasure Islands,
which explained the way in which the formal British Empire morphed into a
spider’s web of tax havens gathering financial wealth from across the world and
funnelling it through to the City. As Oswald explains, this helped to
re-establish London as the financial capital of Capital.
At the time of
the British Empire, Britain structured its economy not around manufacturing and
productive sectors, but around finance. City of London banks provided the
financing for the Empire and the colonies would pay interest to the City.
As Britain’s
Empire declined, City of London institutions were increasingly confronted by
circumstances that limited their ability to function and make a profit. It was
out of this need that various financial interests sought to fashion for
themselves spaces in which they could continue to operate and profit. In order
to create these spaces they used the expertise developed during empire and the
territorial remnants of the Empire, such as Britain’s dependent territories,
financial expertise and networks established during Empire and the knowledge of
how to establish, run and benefit from an international financial system.”
Much of the
expertise built up during the final decades of the formal empire was focused on
ways to avoid paying taxes both in the colonies and in Britain itself. In
the 1920s and 30s offshore companies and trusts were increasingly used to avoid
and evade paying taxes. In the 1950s, with the emergence of the
London-based Eurodollar market, international banks found themselves able to
operate in a virtually unregulated financial market which the authorities – in
this case the Bank of England – treated in a totally laissez-faire fashion.
As Christensen
says in the interview, successive British governments have not only turned a
blind eye to the British spider’s web of tax havens, they have actively
supported its growth by blocking international attempts to tackle it:“Britain has
consistently voted against creating a globally representative
inter-governmental body to shape a framework of rules to strengthen
international cooperation on tax matters. Britain has successfully resisted
international pressure to take effective action against its tax havens in the
Channel Islands, the Cayman Islands, the British Virgin Islands, and other
British dependencies.
I have observed
British officials blocking attempts to strengthen international cooperation on
tax information exchange by keeping discussion on offshore trusts off the
agenda. This happened as recently as 2015 when Prime Minister David Cameron pushed
to have trusts excluded from information exchange processes. This is a pivotal
issue since offshore trusts are key to the British tax haven secrecy model.
Britain has also spent years blocking EU attempts to make progress towards a
common approach to taxing multinational companies (the Common Consolidated
Corporate Tax Base).”
Fast forward to
the present and it seems clear, especially post-financial crisis, that
Britain’s reliance on the City as the engine of growth in the UK economy is a
risky development strategy. Christensen again: “The British
economy is heavily reliant on external trade in services which is dominated by
financial services. Any shock to the financial services sector, for example
arising from being denied access to the EU Single Market, would be highly
damaging to the economy.”
Which raises the
inevitable question about where the British spider’s web might go
post-Brexit. Many of the services previously provided from London cannot
be provided without the Single Market, which will require London-based banks
and law firms to establish permanent establishment with the EU-27. The
British tax havens see new market possibilities in China, India, the Middle
East and Sub-Saharan Africa, but this will probably involve laundering ever
larger amounts of dirty money and enabling ever more tax avoidance. The
problem, as Christensen sees it, is that Britain has failed to plan for
industrial diversification for decades and now faces limited development
options: Prime Minister
May and her finance minister have already indicated that deepening
Britain’s tax haven role is an option. This is a sign of weakness since a
race-to-the-bottom on regulation, secrecy and corporate taxation would probably
expose Britain to risks relating to financial stability and fiscal
sustainability.”
Is this a viable
development strategy? Unquestionably there will be winners: oligarchs,
kleptocrats and the multifarious aristocrats, bankers, lawyers, spooks and
retired politicians who benefit from Britain’s tax haven empire. For the
vast majority of people in Britain, however, hosting the world’s largest tax
haven has no benefits whatsoever and offers only the prospect of further
relative decline and social division. As Oswald comments in the
interview: This is
something we explore in the documentary, in the case of the US and the UK,
services do not make up for the reduction in industrial capacity. Michael
Hudsonexplains that it is through attracting international capital whose
origins may very well be criminal that this has become a possibility in the US
and the UK.”
Read the full
interview here.
