FactCheck: Darling's tax havens
Updated on 28 September 2009
Chancellor Alistair Darling promised delegates at the Labour party conference that the government is cracking down on offshore tax havens, but do his numbers add up?
The claim
"And to make sure people can't avoid paying their fair share, we and other countries are cracking down on offshore tax havens. We've already demanded details of over 100,000 offshore accounts. And this will mean billions of extra unpaid tax returning to our country, with an expected £1bn from our agreement with Lichtenstein alone."
Chancellor Alistair Darling, Labour Party Conference, 28 September 2009
The background
One billion quid from Lichtenstein - not Manchester City's latest signing but the UK's expected windfall from a clampdown on a tax haven, according to Darling today.
The government announced in the summer it had signed "ground-breaking" agreements with the alpine microstate, which has a population of just 35,000.
HM Revenue and Customs (HMRC) said the agreements would "result in offshore investments in Liechtenstein made by UK residents being properly taxed".
The Chancellor today said this proper taxation would lead to a whopping £1bn windfall from the principality. FactCheck finds out what the claim is based on.
The analysis
Government is getting tough on tax havens, we are told. It wants British businesses and individuals with offshore accounts to pay the same level of tax as the rest of us.
With this in mind, HMRC unveiled plans for a New Disclosure Opportunity to let British offshore account holders come out of the woodwork and disclose undeclared tax liabilities, or face higher penalties and even criminal prosecution.
More than 300 banks were also ordered, following a tribunal ruling, to give details to HMRC about customers who hold offshore accounts, in case any do fail to come out of the woodwork.
While Tax Information Exchange Agreements were also signed by the UK with other countries (about 70 in total) "to exchange information to ensure the right tax is paid in each country in future".
So a three-pronged attack then, but how can the Chancellor be so sure about getting £1bn out of the tiny state, which borders Switzerland and Austria?
Some context is worth noting in this regard. When HMRC ran the previous New Disclosure Opportunity – which focussed on the eight biggest offshore banks – it netted about £400-450m in extra tax.
The HMRC expects the most recent New Disclosure Opportunity, which runs from the start of this month until the end of March next year, to bring in around £500m. The increased estimate compared to the previous yield is based on the fact more banks are involved now, rather than just the big ones.
It is worth noting this £500m figure, because according to Darling today, the UK will get double this just from its separate agreement with Lichtenstein, which is a special case as its banks have no UK branches.
The HMRC estimates there are assets of UK individuals and businesses in Lichtenstein bank accounts of between £2bn and £4bn. Again this is worth noting as the Chancellor's prediction assumes the UK is going to get a whopping one quarter, or even one half, of all this money in a tax windfall.
As with the New Disclosure Opportunity, Britons with accounts in Lichtenstein who do come forward will face smaller tax bills than those who don't.
A spokesman for HMRC said: "It is not an exact science of course, we are estimating, and this is our best guess."
The verdict
The facility to get undeclared British tax out of Lichtenstein will run for five years, and only time will tell whether Darling will get the windfall he boasted of today.
The fact a previous programme featuring eight of the biggest offshore banks across various countries only brought in up to £450m suggests it could be an optimistic projection, but the HMRC assures FactCheck the £1bn claim is the result of some research, rather than just wishful thinking.
But given it is still a "guess", perhaps Darling's boasts should be toned down a little, until, or if, the unpaid tax money does start rolling in from the Alps...
FactCheck rating: 3
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The sources
HM Revenue & Customs: New Disclosure Opportunity
HM Revenue & Customs: Tax Information Exchange Agreements
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