Tax Haven Treasure Islands and London Property
Here are three typical headlines:
“Turmoil and strife continue to envelope the Arab World.”
“Greece and Portugal struggle and the Euro could implode – Now Merkel tells Greeks to tighten up tax revenue collection as Germans tire of sleepy Euro partners.”
“Up market estate agents in London see strong demand from Middle Eastern and Greek buyers. We are seeing record levels of interest from overseas clients says Guy Hugo-Fortescue of De Vere Havillands Chase Estate Agents.”
Do you see the connection?
I’ll explain further.
At the moment I am reading Nicholas Shaxson’s “Treasure Islands” book
which has given me pause for thought about how London’s property market is underpinned by quite a lot of “funny money.”
Shaxson’s book has become a best seller and rightly so. To quote one reviewer at the Amazon site, Yves Smith, “Shaxson goes deep into the largely unexamined realm of offshore money. In the process, he reveals that this shadow world is no mere sideshow, but is troublingly central to modern finance, with the US and the UK as leaders. The resulting abuses are widespread, ranging from tax revenue stripping from African nations to individuals and corporations escaping enforcement and accountability. A must read for anyone who wants to understand the hidden reasons why financial services firms have become so powerful and impossible to reform.”
Shaxson’s book is about how wealthy individuals and big multinationals use offshore tax havens to avoid paying any tax. It is about how these techniques have grown hugely in recent years and how they make ordinary individuals and non global firms (who do not have access to such offshoring facilities) very much poorer.
Taxing the Small Guys
The process has gone so far that the very rich and the very big companies really get offended when someone has the cheek to criticise them for paying next to no tax. It explains how one big UK company boss, multi millionaire and alleged tax avoider could have the gall to say, “I don’t know what my critics are complaining about. My employees all pay income tax and NI and therefore my firm is a contributor to the UK economy.”
Well, that’s OK then.
So where does all this untaxed money end up?
Well, according to Shaxson, quite a lot of it goes on a circuitous route via places like the Cayman Islands (where few questions are often asked) and Jersey and eventually back to London where it often ends up in the City banks.
According to Shaxson, the City is at the centre of what he calls a “Spiders Web” of offshore tax avoidance – and the UK is one of the most successful countries in the world at doing it – much better, in fact, than better known bolt holes like Lichtenstein and Monaco.
Clearly, some of the cash ends up in the London property market which explains why the three headlines were connected. It also explains why up London’s market estate agents are so busy fielding calls from their wealthy overseas clients from Syria, Greece, Morocco, Ivory Coast and elsewhere.
So Greece’s loss and Africa’s loss and the Middle East’s loss, becomes London’s gain and lots of this spending on property will eventually trickle down to more modest properties in the capital.
Effect on London
And so, when Londoners read of troubles in the world, they can be sure that some of that money will be heading their way – raising house prices and to some extent, rents too. This is good for those already invested but so great for those looking to buy. It puts the London property market and the property market in places like the Channel islands, the Isle of Man and any territory overseas involved in this business in a special position.
The morale of the story (if there can be a morale in such a story) is that some places in the world – by the virtue of being tax havens or being at the centre of tax haven webs – will always benefit from the troubles and strife of less fortunate parts of the world.
As a footnote, I read some of Shaxson’s book last week in a café in the middle of Marrakech, which 6 days later was destroyed by a bomb targeting Westerners, who some in the Arab world hold responsible for their poverty and oppression. Most of the terrorists won’t know what an offshore tax haven is, though some will. And it will all feed the resentment.
I could have been an indirect victim of this offshore business. I’m just glad to be here and writing this today.
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