Recouping the public cost of the recent financial crisis means waking up to the corruption embodied in the City of London.

The front cover of yesterday’s Observer.

The headline news in yesterday’s Observer was shocking. Reporting the results of a study undertaken for the Tax Justice Network (TJN) by former McKinsey & Co Chief Economist James Henry, it transpires that the world’s financial elites hold in excess of £14 trillion ($21 trillion) in offshore tax havens, an amount equivalent to the size of the United States and Japanese economies combined. To put it another way, that amount could finance a £2,000 hand out for every man, woman and child on the earth. And this figure is only a conservative estimate - the real amount is bound to be much higher since the rich are accustomed to holding their wealth in various forms – property and yachts, for instance - many of which can be registered offshore. Even still, this is an astonishing amount to have escaped being taxed at a fair rate. It is money that could have gone towards building infrastructure, hospitals, schools and other community facilities which many nations are in desperate need of.

Thankfully however, James Henry is not altogether pessimistic about the meaning of his study’s findings:

From another angle, this study is really good news. The world has just located a huge pile of financial wealth that might be called upon to contribute to the solution of our most pressing global problems. We have an opportunity to think not only about how to prevent some of the abuses that have led to it, but also to think about how best to make use of the untaxed earnings that it generates.(¹)

By promoting banking secrecy and depriving nations of tax receipts, tax havens have significantly contributed to the recent financial collapse and subsequent sovereign debt crises of European nations. The IMF put the total cost of mopping up after the recent financial crisis at around £7.12 trillion globally, enough for a one-off hand out of around £1,000 to every man, woman and child on the earth. A one-off levy of 50% on this hidden wealth would leave the rich with plenty of wealth to spare. Such a levy would make the austerity measures which are claiming the livelihoods of a significant number of citizens across Europe unnecessary. Since the rich created the crisis, it follows that the rich should pay.

Besides being a highly progressive tax (“from each according to his ability,” in the words of Karl Marx, “to each according to his need”(²), it would not hamper investment, since it‘s unclear how much of this money is being used productively. In fact, it is more likely that these offshore funds are comprised of significant amounts of cash extracted from third world economies by barely-legitimate means (asset stripping public utilities, for example, or the extraction of third-world mineral wealth aided by corporate land grabbing), or by money siphoned offshore from the international trade in arms and drugs. After all, it is well documented that tax havens facilitate money laundering. Taxing this hidden wealth would send out a clear signal that these activities are not as profitable as they once were, with direct effects on the ground (most notably, the lessening of violent conflict which these markets perpetuate).

But of course, things are never as easy as that. One of the greatest obstacles to unilateral action of this sort is the current lack of a European-wide consensus on this matter. Despite this, given that there is a strong demand from most European nations to put tighter controls on capital flows, and a strong political will for a clamp-down on tax havens from Germany and France, Europe’s most powerful nations, the brunt of the work falls to campaigners and journalists to raise public awareness of the full reality of what is going on in contemporary Britain.

And just what, exactly, might that be? The undemocratic City of London Corporation, an autonomous city within a city, has in recent decades positioned itself at the centre of a vast spider-web of tax havens situated in crown dependencies and British overseas territories, places like Guernsey, Jersey, the Isle of Man, the Cayman and British Virgin Isles. It is an ancient corporation, with roots reaching back as far as the Norman period, at least 800 years ago. As the once Finacial Times journalist Nicholas Shaxson notes, many City insiders joke that this date refers merely to the modern phase of the City.(³)

As a result of its antiquity, the corporation lays claim to a number of historic ‘rights and privileges‘, the most alarming of which is the right to appoint a member of its rank to the role of ‘remembrancer’ in the house of commons. The remembrancer, a role presently occupied by Paul Double, sits facing the speaker’s chair in the house of commons. According to George Monbiot, the remembrancer’s duty is to ensure “that, whatever our elected representatives might think, the City’s rights and privileges are protected.” In the words of Nick Mathiason, business corespondent to the Bureau of Investigative Journalism:

The remembrancer scours every piece of parliamentary legislation to ensure the corporation’s interests remain unaffected.

An unelected representative of financial capital, in other words. Even worryingly still is the fact that the corporation is not amenable to Freedom of Information requests, despite it being the governing body for the so-called ‘square mile’ of central London. Until this corporation is reformed, the unilateral action required to recoup the cost of the crises from those who were instrumental in sowing its conditions will be impossible.