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.
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 the hacking of any financial information, as Matthew Lynn writes on this week’s City View page.
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.