What a 21st century democracy might look like

In the last few articles on this blog I talked about some of the political problems we are facing in Britain today and how these could be addressed through a citizens convention on the constitution, which would ultimately produce the first ever written constitution of Britain. The peoples constitution. There will of course be much opposition from the political elites and others to accepting this new constitution, most of whom are very comfortable with the way things are at the moment, thank you very much. They will not just hand over their privileged positions and power because the people have come up with a better idea. I don’t know how we get around this problem, but strongly believe someone will know how we can force the hands of the political elites to carry out the will of the people.

So assuming we have found a way and the peoples constitution has been enshrined in UK law, what might this new democratic society look like? Parliament could be moved to a more central location, in an existing building that is renovated for the purpose. Westminster palace could be sold off to be developed into much needed affordable social housing. Both the House of Lords and local councils might be abolished and it’s role passed to new constituency councils that would be set up in each of the 650 existing constituencies in UK. Members of constituency councils could be made up of democratically elected local constituents. The councils would hold the balance of power on behalf of their constituents. Annual spending budgets would be prepared by council departments and voted on by the constituents. Full details of public spending would be made publicly available online and in hard copy by the constituency councils, who will also provide regular updates on local spending at their monthly meetings. Any constituent may attend and vote at any meeting of the council, to raise an issue, or hold the council to account.

MP’s could be held accountable to their constituents through the local constituency council, who will be enabled to discipline their MP as they see fit, including sacking of the MP if deemed appropriate. In circumstances where the council deems there are grounds for dismissal of their MP, all local constituents will have a vote on this. MP’s will be required to attend council meetings at least bi monthly, where they will present a report on their work in parliament. Full details of MP’s expenses will be made publicly available on the constituency councils website. MP’s will be given a salary equal to the national average wage, with the opportunity to earn an annual bonus based on performance. Constituency councils will make a recommendation on the value of the bonus and constituents will vote on whether or not to award that bonus. By attending council meetings, MP’s will be able to obtain feedback on how their constituents would wish them to vote on a particular issue. As any constituent could attend any council meeting, this would help to close the divide between MP’s and their constituents.

Control and ownership of public assets would lay with the people of Britain. In the event of parliament proposing to sell off a publicly owned asset, it would have to first produce a report outlining the reasons for this proposal, including a full cost benefit analysis of the sale. This report would then be passed to all constituency councils, who would analyse it and make a recommendation based on it’s constituents best interests. Constituents would then vote on whether or not to sell the proposed asset. This would prevent the disastrous outcomes for the taxpayer we have been seeing over the past thirty years or more, where successive governments have sold off our publicly owned companies and other assets without consulting us and at vast losses to the public purse. Too many once great British companies that were making profits and annual contributions to society through taxes have been sold for less than their true market value. This is at least a contributory factor to our falling productivity output levels.

In a new democratic society Britain would no longer pander to the ever increasing demands of multi national corporations. We the people would dictate the terms and conditions of all corporations being allowed to trade in Britain. Most fundamental I suggest, would be an agreement to pay all taxes that and when they become due. Company directors would be made personally liable for the actions of their corporation. Anyone company or individual not paying their taxes would be dealt with using the full extent of the law. The same treatment would apply trading in a way that might cause damage to our environment. Any corporation wishing to trade in Britain will be made welcome and we will support them, but along with those benefits comes the expectation that they will respect our laws and our society. The ultimate sanction for a corporation breaking our laws would be the removal of their licence to trade in Britain. Participation in full country by country reporting and a public register of corporate ownership would also be conditions of trading in a new democratic society.

Each constituency council would have responsibility for properly enforcing the national minimum wage within it’s borders. The national minimum wage would be increased to a living wage. Any employer found to be paying someone less than the national minimum wage will in the first instance be issued with a formal forming. Constituency councils will have a range of sanctions available to them, with the ultimate sanction being the removal of the employers licence to trade. The national minimum wage would apply equally to anyone entitled to work in UK, help to tackle the growing problem of people living in poverty, give workers a sense of self worth, pride and value in the work they do, increase household incomes, increase tax revenues which could be spent on public spending and eventually eliminate the need for top up benefits such as tax credits and housing benefits for low income workers. There is an estimated £85billion per year of public money being spent on subsidising big corporations that pay low wages.

Power and control would be moved away from a centralised government and into the hands of constituency councils, with British citizens holding the ultimate balance of power and control. The role of parliament might be to draft, debate and vote on new legislation as it sees fit. Bills passed by parliament would then be handed over to constituency councils for review, amendments and voting on the bill. Councils may decide to pass the bill to it’s constituents for a vote and no bill may become law without approval of at least two thirds of the constituency councils. Bills relating to matters of national interest and votes on a proposal from government to take us to war would have to go to a national referendum. This would be a truly democratic Britain, run by the people, on behalf of the people.  

Bung us 40million francs and we’ll say no more about it

The hopes of millions of people across Europe, that Switzerland would join the tiny number of countries taking legal action against HSBC (Swiss) for money laundering were dashed today when Geneva’s chief prosecutor Olivier Jornot announced that a financial settlement of 40million Swiss francs (£28million) had been reached and that the Swiss authorities would be taking no further action against the bank.  The bank was under investigation for money laundering, following when UK channel 4’s dispatches program made public information that the Swiss arm of British bank HSBC had been assisting individuals to hide money from their national tax authorities. The information originally came to light when IT specialist Herve Falciani who was working at the bank in Switzerland turned whistleblower and leaked details of some 106,000 private accounts at the bank.

In the UK, HMRC received the leaked files in 2010. Following the dispatches program in February, it was revealed by HMRC they had identified three thousand six hundred British nationals from the Falciani files, when they appeared before the Public Accounts Committee. Of those, two thousand five hundred were found to have done nothing wrong, as it is not illegal to hold a private bank account in a foreign country. All but one of the remaining one thousand one hundred British citizens, were allowed to pay the outstanding tax plus a small financial penalty of 10% and that was the end of the matter. That means one thousand and ninety nine British individuals were caught red handed evading tax, which by the way is illegal in Britain and not one of them were prosecuted. HMRC claim to have collected £135million in unpaid taxes and penalties. The one individual HMRC did prosecute was found guilty of tax evasion in the amount of £387,103 and was ordered to pay an additional £469,444 in fines and legal costs. Tens of millions in tax evaded and not a single person spent even one day in jail.

It was through a tax amnesty agreement between the British tax authority and tax authority in Lichtenstein that the one thousand and ninety nine individuals were allowed to make financial settlements. The Lichtenstein agreement was set up in 2009 so that British nationals who held financial assets there could declare them to HMRC without facing prosecution. However the agreement had some strict conditions in order for the amnesty to be offered. Firstly, the assets had to be held in Lichtenstein. Secondly, the amnesty could not be used where a criminal prosecution was likely. Thirdly, the claim could only  involve assets about which HMRC were not already aware and the disclosure had to be made voluntarily, without intervention from HMRC. But none of the assets were held in Lichtenstein. All of the individuals had committee tax evasion and therefore criminal prosecution should have been likely. HMRC had found out about the assets through the Falciani files and therefore already knew about all of the assets when the individuals were approached and therefore none of the disclosures had been made voluntarily. The favourable treatment available under this tax amnesty, should never have been given to any of the one thousand and ninety nine individuals concerned.

When giving evidence before the Public Accounts Committee, HMRC chief executive Lyn Homer said that half of these individuals had asked to be given amnesty from prosecution under the Lichtenstein agreement and were advised by HMRC to move their assets to Lichtenstein in order to qualify for the amnesty. The other half knew nothing about the Lichtenstein agreement, but were advised of it by HMRC staff and told to move their assets. This is not just giving out amnesties to tax evaders, it is advising breaking the rules by advising them of the amnesty and how to qualify. It was never the intention of parliament that those caught red handed evading taxes should be given an amnesty, so clearly HMRC are ignoring the will of parliament and applying the rules how and when they see fit. HMRC do not, nor should they ever be given the power to decide if and when the laws of the land are to be applied and when they can be ignored. Their sole remit is to collect the taxes that are due as determined by parliament.

Online campaign group Avaaz who have more than 40million members worldwide, have initiated judicial review proceedings against HMRC in relation to it’s decision to offer the amnesty.  Avaaz’s campaign director, Alex Wilks, said in a statement when the legal action was launched: “If the police extended the terms of knife amnesties to criminals caught carrying weapons, the public would be outraged. Tax officials must urgently explain why they gave get out of jail free cards to so many wealthy tax dodgers.” The difficulty with financial penalties is individuals who are caught evading taxes on this scale can well afford to pay the tax owed plus a small financial penalty, in the highly unlikely event of them being caught. Therefore financial penalties provide no incentive to change behaviours or to think about the consequences of what they are doing, aside from the fact it is illegal. As with the case of HSBC bank in Switzerland and the multiple fines imposed on UK banks in the past five years, financial penalties send out completely the wrong message to those actively and anyone considering participating in illegal behaviour. It says do as you please because even in the unlikely event you get caught, the worst that will happen is you will receive a fine.

Put these individuals or businesses on trial in a court of law and if found guilty, send them to jail for a substantial period of time. Then use the proceeds of crime act to seize all of their assets and reimburse the public purse. Prosecute a few cases in this way and word will spread like wildfire that there are serious consequences for breaking the law in Britain. Such actions will have the effect of focusing the minds of anyone considering illegal activity and it will be an effective punishment for those found guilty. They will think twice before carrying on with business as usual once released. Treating wealthy tax dodgers and banks who help them exactly the same as we treat an individual who over claims benefits they are not entitled to is exactly how things work in a truly democratic society.

It is also noteworthy here that because the Swiss authorities have decided to agree a financial settlement with the Swiss arm of HSBC, information they gained on exactly what the bank had been up to will never be made public. Also, despite authorities in France, Belgium and Argentina having brought charges of money laundering and fraud against HSBC bank, no such charges have ever been lodged against the bank in Britain. Finally, HMRC had powers at the time of the Falciani files case to impose financial penalties of up to 200% of the tax evaded, but it chose not to use them. What kind of democracy is this?

No George, clearly we're not all in this together .....

One contemptuous feature of Britain's finances is a tax break for individuals called "non-domiciled status." The more than 200 years old tax break was designed to attract wealthy foreign investors to Britain by allowing them to keep any money they earn out of reach of the British Taxman. We are the only nation in the world to have such a system and HMRC has long suspected that some “non-doms” have been using the status to avoid tax on money made in Britain.

The tax break is available to any individual normally residing in Britain who either was not born in Britain, one of their parents was not born in Britain, or they are British and have spent an extended period of time abroad. Anyone apply for non-dom status must also prove a connection with family or a business abroad and declare it is their intention to eventually leave Britain. HMRC declare there are 114,000 non-doms currently living in Britain.

One of the ways in which the status is known to have been abused is when a non-dom, who owns a British company transfers the company to an offshore tax haven and sets up a trust that is declared as owner of the business. Profits generated by the business are legally foreign income and therefore not subject to UK corporation tax. If and when the company is sold, gains are again legally foreign income and therefore not subject to UK capital gains tax. 

However the rule was never intended to shelter British assets, yet all attempts to change or abolish non-dom status have been met with strong criticism, including when former leader of the labour party Ed Milliband announced the parties intention to scrap the rule during the recent general election campaign. In an attempt to crack down on abuse the then labour government introduced an annual charge for claiming non-dom status of £30,000 and this has subsequently been increased to up to £90,000 depending on how long the individual has been resident in Britain.

Prominent tax lawyer Jolyon Maugham once said that generally speaking “there is no rational basis for a system that transfers ownership of this UK income abroad.” But even when non-dom status is used as intended, it is controversial, as all other British residents pay tax on worldwide income, regardless of where they make it. Staunch opponents of the favourable treatment include captains of British industry and establishment newspapers such as the Financial Times, who say non-doms get an unfair way to avoid taxes. The system's backers include employers' group the Institute of Directors and free-market think tanks, say the non-dom status attracts foreign talent and money at no cost to the taxpayer.

One high-profile businessman who is known to be a non-dom is business guru James Caan. Having been born in Pakistan entitles Mr Caan to non-dom status. In 1985 he set up a recruitment consultancy called Alexander Mann in London Mayfair and built it into one of Britain’s biggest talent acquisition and management services groups. In 1998 Caan transferred ownership of the company to a Jersey based family trust of which he was a legal beneficiary. The trust sold the company to private equity firm Advent International in 1999 for £130million. As the company was foreign owned and Mr Caan has non-dom status, he was able to legally avoid paying any capital gains tax on the sale that might otherwise have been due.

Former racing star Jackie Stewart is an example of how non-dom status lets’ even Britons send profits earned in Britain offshore. Stewart moved to Switzerland in 1968 but in the 1990s, returned to live in Britain so he could establish a Grand Prix team. His company, Stewart Grand Prix, was based in Britain but was owned via a Jersey trust for the benefit of Stewart's family. In 1999 the team was sold to Ford for £76million. As the team was held by an offshore trust and Stewart was a non-dom the windfall was not subject to UK capital gains tax.

For 25 years Harrods Egyptian born Mohamed Al Fayed who is a non-dom owned department store. In the 1990’s Inland Revenue alleged that enormous dividends from Harrods were being sent offshore. This lead to an agreement between the two parties whereby Al Fayed would pay around £200,000 in tax annually regardless of how much he earned between 1985 and 2003. When he sold Harrods to Qatar Holdings in 2010 for a reported £1.5billion, it was registered to a family trust in Bermuda and given his non-dom status, Mr Al Fayed was required to pay no capital gains tax on the proceeds of the sale.

Foreign national footballers playing in the English & Scottish leagues are also known to abuse the non-dom tax status. As they are not British born and will in all probability leave Britain at some point in the future, they too qualify for the tax benefit. Earning huge sums of money they are able to avoid income tax by legally having their salary paid into an offshore bank account, often in their home country. These are then legally classed as foreign earnings and provided they are not brought back into Britain, will never be subject to any UK tax. The players then sign lucrative sponsorship deals, which are subject to UK taxes to cover living expenses.