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With the UK general election imminent, which of the political parties is best-placed to understand the relationship between the mainland and offshore economies? By Graham Parrott
I do not think anyone could have failed to notice that an election is about to take place in the UK. By the time 6 May arrives many will just be glad to get back to normal. But it is important not to let the politics get in the way of what an important election this is.
There are many ways to judge the best outcome. You may be tempted to look to your own, but none of the three major party leaders have legal backgrounds.
In seeking to assess the impact offshore I should first say that I have no vote in this election. However, there is a whole range of issues that need to be considered. What has become clear is that the economy is equally as important in the UK now as it was for Bill Clinton in 1992. Taxation is a key part of that and the impact of fiscal policy in the UK and internationally is very important to the offshore market, which includes many lawyers working in the UK. So what result should we be looking for?
It is tempting to just follow the perceived wisdom that a Conservative victory would be the most welcome by offshore centres. This was arguably reinforced by Gordon Brown’s speech in Strasbourg last year in advance of the G20 London Summit, which he hailed as the beginning of the end for tax havens and offshore centres.
However, that statement was made at a time when offshore centres were being blamed for all of the world’s problems. What emerged subsequently was a more rational assessment that transparency and appropriate regulation were more important in achieving the desired objective of avoiding another worldwide financial meltdown.
The past 18 months have seen a move away from the offshore focus, with more attention being paid to the activities of banks, as evidenced by the amount of time devoted to them in Alastair Darling’s most recent Budget speech and in the amount of time devoted to this issue by politicians. At the time of writing none of the formal manifestos had been published, but I do not expect offshore to be an overused word.
That said, all the parties have sought to maximise the political advantage (the real financial one is much less clear) from looking at those living in the UK with favourable tax status. I never thought I would see the day ’non-doms’ featured in The Sun. And the Conservatives were the first to open this particular Pandora’s box.
And there will continue to be rhetoric about tackling those evading tax through the use of havens. What this fails to acknowledge is the huge effort made by the authorities in most respectable offshore centres to do just the same.
The Liberal Democrats, through their treasury spokesman Vince Cable (again, not a lawyer), have perhaps been the most overt in their criticism of all things offshore.
Early in the financial crisis this included calling for the ’nationalised’ banks to close their operations in offshore territories, irrespective of the economic effect.
A strong UK economy is good for those of us living offshore, and there is a reluctant acceptance by some that this is a symbiotic relationship; last year’s review into offshore centres by Michael Foot acknowledged the benefits to the UK economy and recognised the importance of the Crown Dependencies to the UK. The report stated that together we provided net financing to the UK of $332.5bn (£216.19bn) in the second quarter of last year. So it is appropriate to judge what is good for the offshore market by what is good for the UK economy generally.
That would suggest avoiding a hung Parliament, with all the talk of a run on the pound and a lack of political authority at a time when it is likely to be most needed.
And if there is to be an outright winner, then a detailed analysis from one investment bank has suggested that the City would benefit from an outright Conservative victory. This notwithstanding that party’s plan for a unilateral tax on banks, while Labour favours one implemented on a global basis, which seems less likely to have an adverse affect on the UK’s competitive position in an increasingly global banking market. For offshore centres this might bring much-needed domestic revenues, although the need to focus on cost could have a negative impact.
So as this article goes to print with the election just a few days away, what are we hoping for from an offshore perspective? While acknowledging that this is a UK domestic matter and the offshore market is one of little taxation and still less representation, we should basically want the same as the UK: a strong government that will address the huge economic problems facing the UK economy in a way that is fair to all and which will see it grow and prosper.
Graham Parrott is a tax partner at Ernst & Young