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J.P. Floru is the author of The Sun Tyrant: A Nightmare called North Korea and Heavens on Earth: How to Create Mass Prosperity. He contested Bermondsey and Old Southwark in the 2015 General Election.

Reacting to the Commons vote a week ago today, which seeks to impose stringent new tax rules on our Overseas Territories, Theresa May’s Government now seems to have joined the Labour Party in attacking tax havens. The British Virgin Islands have already threatened to declare independence over the issue – and they would be right and justified in doing so, for it is their tax haven status which allows this far-away territory to thrive without massive money infusions from the British taxpayers.

There is a very strong moral case to support tax havens. This is almost never made by centre-right politicians. No doubt they are afraid of the simplistic howling choir that ensues whenever we plead for lower taxes. Remember how George Osborne was shouted down when he reduced the 50p tax rate to 45p? (never mind that the tax cut resulted in massive additional tax revenue as a result of higher growth) Our MPs seem to be afraid to say what is right in this respect.

What is the moral case for tax havens? It lies in the principle of tax competition. As long as there are different tax rates in different jurisdictions, no one country can raise tax rates to suffocating levels. If a government taxes too much, its productive citizens will flee. We see this in contemporary Britain with the influx of many hard-working Western Europeans to our shores. Internal and worldwide competing tax rates guarantee that you and I will never be fleeced by avaricious politicians.

It was always thus. My native Flanders was tremendously prosperous in the Middle Ages. Why? Because the different city-states (Ghent, Brussels, Bruges, and Antwerp) were more or less independent fiefdoms which competed which each other. The local lord could never increase taxes or regulations too highly, as the productive citizens would simply leave for a neighbouring city with a more favourable regime. A general lower tax rate ensued; the economies grew faster as a result and, in the end, everybody was better off. There is quite a bit of evidence that Germany prospered when it was cut up in many small fiefdoms with competing tax rates.

Today, some countries have internal tax competition, and thrive as a result. Swiss cantons compete very heavily on tax with each other. Switzerland is now also enjoys the ninth highest GDP per capita in the world. If we discard oil-producing countries, Switzerland would be the fifth wealthiest country. Switzerland’s great prosperity and its low tax rates with internal competition are not a coincidence.

Within the UK, there is tax competition too. The City of Westminster today has the lowest council tax in the country, and its economy and property prices are in a continuous boom (through business rates, it helps to funds the rest of the country). Socialist Nicola Sturgeon is unable to raise tax to extortionous levels, because she knows full well that all productive entities would leave Scotland for England if she carried out her dream.

So tax competition, whether internally, or internationally, has a profoundly positive effect. It makes it impossible for assorted socialists, tyrants, and statist politicians to raise taxes.

It is telling that the European Union, notwithstanding the fact that it is not legally competent for taxation (tax officially still remains a national competence), is leading the attack for ever more stringent tax controls, and is also internationally leading the fight against tax havens. It even produced a tax blacklist with 53 jurisdictions on it. Spendthrift Eurocrats don’t want their productive tax payers fleeing abroad – and therefore want to clamp down on tax havens. Once tax havens are no more there will be no limits to what they can tax.

Astonishingly, the May Government has now joined the attack on our own tax havens.  In a last-minute U-turn, the May Government agreed to back an amendment which will force the British Overseas Territories to reveal the identities of people who place money in its companies. This amendment came from staunchly socialist multi-millionaire Margaret Hodge, and, surprisingly, from Andrew Mitchell. 19 Conservative MPs backed it. It would be good to have their names published: it is a roll-call of those who are elected on our lists, but are Conservatives in Name Only.

Is the May Government looking forward to territories like the Cayman Islands, Bermuda, and the British Virgin Islands either declaring independence, or becoming fully-fledged benefit claimants, funded by British taxpayers? Because that will be the end result – independence or the begging bowl. It is its tax haven status which allows those Overseas Territories to thrive without handouts from the UK. We Conservatives should stand up for low tax, tax competition, and tax havens. In fact, the UK would do well to become a tax haven itself – as it would create wealth beyond our wildest imagination, and could lift up everybody.

65 comments for: J.P.Floru: In defence of tax havens. May’s threat to the British Overseas Territories is un-Conservative.

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