Editor's letter

The Paradise Papers force the wealthy to take cover

A climate is developing in which the wealthy are perceived to not be paying their way, says Cris Sholto Heaton.

At first glance, the Paradise Papers story looks like it will be a much smaller scandal than the Panama Papers two years ago. Back then, the huge leak of documents from offshore law firm Mossack Fonseca uncovered many shell companies that were being used for tax evasion, getting around sanctions and other outright illegal activities. The leak from offshore law firm Appleby has at the time we go to press mostly just revealed some awkward but legal details about the financial affairs of everybody from the Queen to Bono.

Yes, a few public figures could soon be having an uncomfortable conversation with the taxman about whether their arrangements are legitimate tax avoidance or something that pushes the limits of the law a bit too far to be tolerated. But the main lesson might seem to be that if you are an offshore law firm that has not yet reviewed its cybersecurity systems, it would be wise to do so very quickly.

Subscribe to MoneyWeek

Become a smarter, better informed investor with MoneyWeek.

Yet that would miss the real importance of this story. It doesn't matter whether every detail exposed in the leak turns out to be legal. Public opinion has been turning against offshore financial centres that promise privacy and low taxes and against those who use them for several years. The headlines about this fresh leak will only increase the perception that too many of the wealthy are able to avoid taxes in a way that's unfair when everyone else is struggling.

This climate is worrying in many ways. We might all end up suffering if we demonise the entire principle of confidentiality and justifying thehacking of any financial information, as Matthew Lynn writes on this week's City View page.

Advertisement
Advertisement - Article continues below

But the grievance is justified and governments need to respond by getting to grips with abuses of the tax system. That involves closing preposterous cross-border loopholes. It requires more sharing of information between international tax authorities. It means putting more pressure on offshore financial centres (including some British territories) to improve transparency. But it should also entail having fewer, better rules.

Tax codes have become more complex (Britain's tax code has trebled in the last 20 years). That complexity creates only two things: work for accountants and lawyers and opportunities for them to find loopholes on behalf of wealthy clients. Neither are good for the rest of society. So when Philip Hammond unveils his Budget in two weeks' time, we'd like to see him announce that he will immediately start work on a radical simplification of our tax system.

That's a big task for a government in chaos. But unless it shows that it is listening to public opinion, the Paradise Papers will be one more factor that will propel Jeremy Corbyn into Number 10.

Advertisement

Recommended

Visit/519858/how-long-can-the-good-times-roll
Economy

How long can the good times roll?

Despite all the doom and gloom that has dominated our headlines for most of 2019, Britain and most of the rest of the developing world is currently en…
19 Dec 2019
Visit/516758/beyond-the-brexit-talk-the-british-economy-isnt-doing-too-badly
Economy

Beyond the Brexit talk, the British economy isn’t doing too badly

The political Brexit pantomime aside, Britain is in pretty good shape. With near-record employment, strong wage growth and modest inflation, there is …
17 Oct 2019
Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/uk-economy/brexit/600791/will-britain-close-its-doors-to-immigrants-post-brexit
Brexit

Will Britain close its doors to immigrants post-Brexit?

Details have not yet been forthcoming, but Britain will soon have a new immigration policy. What will that mean for businesses and investors?
8 Feb 2020

Most Popular

Visit/economy/uk-economy/600837/rishi-sunak-new-chancellor-spending-splurge
UK Economy

Britain has a new chancellor – get ready for a major spending splurge

The departure of Sajid Javid as chancellor and the appointment of Rishi Sunak marks a change in the style of our politics. John Stepek explains what's…
14 Feb 2020
Visit/economy/600814/money-minute-friday-14-february-the-latest-from-rbs-britains-state-owned-bank
Economy

Money Minute Friday 14 February: The latest from RBS, Britain's state-owned bank

Today's Money Minute previews results from RBS – Britain’s state-owned bank – and from pharma giant AstraZeneca.
14 Feb 2020
Visit/investments/property/600826/living-on-a-houseboat-the-pros-and-cons-of-a-floating-home
Property

Living on a houseboat: the pros and cons of a floating home

Living on a houseboat sounds romantic and peaceful. But it’s not as straightforward as it looks, says Nicole Garcia Merida
14 Feb 2020
Visit/investments/stockmarkets/european-stockmarkets/600725/is-2020-the-year-for-european-small-cap
Sponsored

Is 2020 the year for European small-cap stocks?

SPONSORED CONTENT - Ollie Beckett, manager of the TR European Growth Trust, on why he believes European small-cap stocks are performing well.
12 Feb 2019