Published on 2 Feb 2012

How many billions will Britain get from the great Swiss tax amnesty?

“To govern is to choose”, is what they say, and last year the treasury chose to sue for peace amid worldwide pressure on Switzerland and its banking secrecy. I have to admit, that at the time, it seemed to me to be clear that HMRC and the treasury had chosen a pragmatic if morally difficult deal with Swiss authorities. In effect, Swiss banks would dip into the accounts of British customers and take up to half the balances in a one off hit, to hand to the UK Treasury to make up for previous tax evasion.

The price? An effective amnesty, and the maintenance of Swiss bank secrecy. But, the Treasury put a yield from the deal at £4 – 7bn. That is a significant sum. the problem, is that since that calculation, the numbers have looked a little optimistic.

I have just returned from Switzerland where I did the first interview with new President and finance minister Eveline Widmer-Schlumpf. She was unable to confirm any figure for the much-heralded yet controversial tax deal announced by the Treasury last year. When challenged by Channel 4 News on these numbers, she said that “Britain will get back a lot of money” but it was “up to the banks” and “I can’t speak about billions”. Tax campaigners have calculated just a few hundred million will be raised from the plan because of numerous loopholes.

Read more: Is the UK serious about tackling tax evasion?

It’s not just the proliferation of avoidance schemes that are spreading across the wealth management industry (move the money to singapore/ Panama, or pretend you’re a company, or live abroad). Even before that the Office of Budget Responsibility cast severe doubt on the number in its assessment of the Autumn Statement: “Our initial discussions with HMRC suggest there are significant uncertainties (in particular over the amount of UK funds in Switzerland that would be subject to the deal and the assumed level of compliance) and we currently judge that the yield is likely to be towards the lower end of the range,” it wrote in November (page 118)

So the question about the actual money that will be raised is very real.

As is a changing international background. For nearly 80 years the Alps have been a haven for the world’s super-rich. Bank secrecy as Swiss as chocolate and pricey watches. But as the West’s tax coffers empty, this famously neutral country is under attack. The Swiss President told me thet “We felt a lot of pressure for years” before explaining that Switzerland was pursuing a “white money strategy”.

But this building symbolises another more aggressive method for pressurising the Swiss: that of the US.  Last week Wegelin, Switzerland’s oldest private bank effectively had to close. Today it was indicted in the US with helping americans avoid tax.  The US is using a large stick and small carrot approach. The large stick is approached to specific legal issues with banks, wheras the small carrot of a deal is dangled in front of the Swiss government. Swiss bankers have been targeted, jailed. Information has then been used on other banks. Eleven Swiss banks are under investigation. Information and names of 4,000 suspected US tax evaders have been gathered. It’s more Jack Bauer to our Jack-anory.

Nick Shaxson, author of Treasure Islands, likens it to an “economic war” that was started by Switzerland, and that there is a “marked contrast” between Britain’s “cosy deal” and the robust approach of the US. He points out that the scalp of Wegelin shows that US authorities are willing to “go to the heart of the Swiss banking system” a bank that had no branches abroad. Wegelin’s boss was one of the main public defenders of Swiss bank secrecy, who justified it on the basis of providing a haven for citizens of “illegitimate states” like France and Germany that spent too much of their peoples’ money.

The UK treasury says it did the best possible deal – but already it is having to talk about changes to prevent the European Commission referring the deal to the European court of justice. If the changes are large enough, it might have to renegotiate the deal with Switzerland. Perhaps America shows that a more hands-on approach yields more tangible results.

Follow Faisal on Twitter: @FaisalIslam

7 reader comments

  1. Meg Howarth says:

    Here’s the ‘farewell to America’ letter Wegelin bank issued over 2 years ago.

  2. Philip Edwards says:

    Faisal,

    A mere gesture, but better than nothing.

    A mere gesture because capitalism and its gangsters will ALWAYS need somewhere to hide thieved wealth and “hot money.”

    If capitalist states were serious about this they would introduce economic sanctions and restrictions against Switzerland and any other gangster state. After all, they found it easy enough to do against Iran and anyone else they don’t like. Serious efforts would isolate ANY off shore bolt hole – won’t happen though, not at any truly effective level anyway.

    Here’s a thought for all you economist clerks: why not a global Economic Bill of Rights to produce fair distribution of wealth based on social conscience and responsibility? Can you see the Gnomes of Zurich, the Spivs of London and the Gangs of New York going for that?………Thought not.

  3. Saltaire Sam says:

    Gosh! George Osborne and his mates involved in gesture politics. Can hardly believe it.

    Just how much the people running this country are out of touch with ordinary folk became clearer when we heard the case of the civil servant with a tax fiddle.

    Not only did he reduce the tax on his salary by having it paid to a company rather than as salary, he is also being given £550 per week as a living allowance because he wouldn’t move home to be near the office in Scotland.

    By my calculation that is £28,600 tax free over and above salary – more than the benefit limit being set on a family with four kids.

    Meanwhile SIR Philip Green has gone on, blithely unaware, I’m sure, that the final date for tax returns has just passed.

    No wonder they don’t get it.

  4. Andrew Dundas says:

    Great news from America. The US posted 243k more jobs in January (incl. +257k private sector) and’Consumer Comfort’ index is up in positive territory too. Net is that UE has fallen from 8.5% to 8.3% and way beyond most optimistic fore casts.
    It’s the lowest UE since Jan 2009 & the 23rd month of growth in commercial jobs.
    How’s it done? Can we learn from this? Yes we can.
    For a start, US taxes on spending vary around 5-7%. Our equivalent rate is 20%. It’s rising domestic spending that’s driving the US recovery. That and a lower exchange rate and QE boosts from the Fed.
    Fed Reserve Bank is stimulating the US economy with 0.25% repo rate and enough Bond buy-ins to keep US money supply buoyant. And Government bail-outs on a grand scale. Each of which our coalition condemned. Merkel has refused bail-outs too, and her french poodle has yapped his agreement.
    So now we know that those ‘Keynesian’ policies work. How about more of that stuff here?
    Or would that be too like a change of course ?

    1. Caliban says:

      Keynes said governments should spend (or cut taxes which is essentially the same thing) to stimulate an economy in bad times.

      However he also said, governments should pay down debt and run surpluses during the boom times, in order to pay for it A part of the equation Mr Balls and others have chosen to ignore.

      He did not give any advice to governments that were already up to their ears in debt due to overspending in the boom times. He probably thought no government would be so insanely stupid.

      He had never met the Rt Hon George Brown M.P.

  5. Caliban says:

    Publicising a tax raid in advance seems designed to minimise the take. But no doubt Banks in the Seychelles and similar tax havens are very grateful.

  6. Saltaire Sam says:

    Faisal, can you please explain something to a confused old man? If the money given to Harry Rednapp wasn’t subject to tax, what benefit was there in him putting it in an offshore account?

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