It’s time to 'get medieval' on the rich

The ancient Babylonians wouldn't let HSBC shirk their tax responsibilities, and we shouldn't either, says Dr Peter Frankopan.

Despite the headline-grabbing nature of the scandal, few in the City have been surprised by the news of HSBC's Swiss bank accounts. Parking cash far from the grasping hands of the taxman is as old as time. It is one reason why the very earliest laws those set out by Hammurabi the great king of Babylon, who lived nearly 4,000 years ago talk of the importance of gathering revenues from citizens.

For the Babylonians, successful government meant striking a balance between the interests of the state and the desires of its citizens. In return for enjoying the benefits of prosperity, security and justice, the inhabitants of Hammurabi's kingdom had to agree to help the state: first, by defending it against outside threats; and second, by serving it in ways that were useful to others through service or tax. To share the rewards, Babylonians had to share the burden.

While that sounds perfectly reasonable in theory, in practice, elites do not like to play ball and never have. History is full of accounts of the rich taking elaborate steps to hide the true extent of their wealth in order to minimise tax payments, and of governments trying to ensure that everybody paid up.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

This was why the Domesday Book was compiled under William the Conqueror: to provide an asset register that enabled the new Norman regime to check who owned what, and gather dues accordingly.

The rich have always tried to stay one step ahead of the taxman. But this not only creates problems for the state, especially during recessions, but also directly affects the poor. For example, avoidance of obligations became so acute in the reign of the Byzantine Emperor Justinian in the sixth century that the way tax was calculated and collected was entirely overhauled.

The avoidance of tax by so many threatened "the very cohesion of the state", as he put it. When the wealthy shield their assets legally or otherwise it is the middle classes and the poor who pay the price. Roads still need to be built and maintained; the military still needs its supplies. Civic institutions do not build themselves.


Hammurabi: it's justice that binds the state

So when less revenue flows into central coffers, governments have always made up the shortfall, not by targeting the well-off and well-advised, who can put themselves out of reach, but by collecting more and more from those less able or well placed to deflect attention. The middle classes and the poor were squeezed ever harder, pushing pressure down ever further into the socialsystem.

Those at the bottom suffered most as Karl Marx recognised. Smart administrations realised this was unsustainable: as one early medieval ruler put it, the state disappears if "the common people disappear".

As a result, in Late Antiquity and the Middle Ages, those who overstepped the mark in trying to feather their own nests were clamped down on ruthlessly. In the Roman and Byzantine Empires, for example, those caught avoiding their obligations would have their property and assets seized. Sometimes punishment of blinding was imposed, or, in more borderline cases, a public flogging, coupled with the head being shaved to mark out those who had defrauded their fellow citizens.

Similar measures were adopted in the Islamic world. Muslims who avoided tax, ruled Umar the second Caliph, should not just lose their property; they should lose their freedom. Only a custodial sentence would do for those who took advantage of others. Later rulers in this part of the world were equally emphatic.

Petitioned by a group of 11th-century equivalents seeking non-domiciled status, the Emperor of Constantinople exploded. If anyone else dares ask for a tax concession, he said, I will personally slit both their nostrils.

We do things differently these days, of course. We should not be surprised that a recent YouGov poll found that nearly two-thirds of taxpayers in the US do not believe that they have a dutyto make contributions to public services. And commentators complained of the certainties of death and taxes a thousand years before Benjamin Franklin. What has changed is how we deal with those who break the law or skirt its edges.

It seems much more simpatico to deliver slaps on wrists, fines and the occasional here today, gone tomorrow roasting by a committee of MPs. Such toothlessness is very much in keeping with the times. Our ancestors would have taken a no-nonsense approach to those who wanted the benefits, without wanting to pay the price. They would have laughed at the concept of tax breaks, recognising them as incentives designed to make the rich even richer.

They would have sneered at the fact that the state failed to take action against barons of business who remained safe from prosecution despite openly admitting not only to defrauding their customers, but also to participating in illegal activity. They would have been astonished that those found to be salting their earnings made off the back of the stability and growth of the state in jurisdictions beyond the crown's reach, were allowed to do so in the first place.

We often think of the past as a time of violence and intolerance. But in fact, the history of political thought going back 5,000 years is united by precisely the opposite impulse: what binds the state together, as Hammurabi himself noted, is justice. And if the powerful are able to flout the rules and get away with it, that is not just unfair; it starts to weaken the very sinews of the state.

Dr Peter Frankopan is senior research fellow at Worcester College, Oxford. His latest book, The Silk Roads: A New History of the World, will be published in August 2015 by Bloomsbury.

Dr Peter Frankopan is director of the Centre for Byzantine Research at Oxford University, and author of The First Crusade: The Call from the East, published by Bodley Head (£6.99).