UK Government & Cayman Islands: how might a Tory government change things?

Although political opinion polls are often a sketchy prediction of how people will actually vote on the day, they are often more or less right. As the general election is to be called this May in the UK, it seems likely the Labour government will be pushed out by the Conservative Party.

UK Conservatives are traditionally the party of business. Led by David Cameron, a former student at posh public school Eton (attended more recently by Princes Harry and William), the party aims to lift Britain out of a recession through its natural business instincts.

But what will a change in UK government this year mean for the Cayman Islands?

Before speculating how Cameron might take things, let’s remind ourselves of President Barack Obama’s position on tax havens whilst he worked the campaign trail in 2008.

Regarding Ugland House in George Town, Obama said it’s either “the largest building in the world or the largest tax scam in the world.”

Faced with taxpayer anger at the lack of ethics in the corporate sector in the US, Obama used the building in George Town to illustrate the complicated and illusory business practices behind global corporations and their profits.

Will David Cameron look to befriend President Obama by taking a similar view on offshore tax havens?
Let’s now take a look at the current UK government, and how it sees the Cayman Islands. In the recent past, Gordon Brown’s Labour government has, like Obama, tried to firm its resolve in dealing with the Cayman Islands.

We all saw last September how UK junior Foreign Office minister Chris Bryant turned down a request by McKeeva Bush for funding. The UK Guardian newspaper reported Bush “begged the British government to borrow $310m (£190m) from banks.”

The Guardian seemed to be over-dramatising the situation. Describing the Islands, it said Cayman is divided both “economically and socially”. It said “ultra wealthy” visitors like Tiger Woods and Microsoft’s Paul Allen live side by side with “poor people who exist... to serve the wealthy in the hotels, private clubs and staffed households.”

I have experience myself as one of these “poor people”, having worked in a bar on the North Side. I wouldn’t want Guardian readers to worry -- I lived very comfortably, as I know a great many other workers in the hospitality industry do.

The Guardian was not very fair in its example to demonstrate the economic and social divide either. After all, there are few people who would look rich stood between Tiger and the cofounder of Microsoft.

The money for the Islands eventually came through from the British government, but the posturing by the Foreign Office sent a clear message. It said the Labour government does not like how the Island supports itself as a financial services supplier, and it expects it to become more self-sufficient by introducing payroll or property taxes in the future.

Labour seems to be in line with Obama on its general disdain for the Islands. The Conservative issue is trickier.

As a part of big business, the party sit comfortably with the landed gentry, oligarchs and wealthy elite. Elements within these groups will use the Cayman Islands’ financial services, and therefore serve a vested interest in keeping offshore islands running.

For Cameron, there are people with a vested interest in keeping havens offshore within his own party.

Conservative candidate and environmental advisor Zac Goldsmith has a £200m inherited fortune. He was singled out last December by the media for his status as a ‘non-domicile’. This is a position that entitles him to live in the UK but not pay tax on offshore income. He had reportedly been a non-domicile for the past decade, up to April last year.

Similarly Lord Ashcroft, a billionaire and former Conservative Treasurer in charge of party finances, has declined to confirm his status as a UK taxpayer, despite being originally asked a decade ago.

Although Lord Ashcroft operates businesses mainly within Belize, Goldsmith’s tax status specifically identifies the Cayman Islands.

Goldsmith’s private residence in London and his ecological farm in Devon are reported to be owned by companies based in the Cayman Islands. How Cameron reacts to Goldsmith must surely be an indication of how Cameron sees tax havens, and those who use them.

So how did the Conservative leader and potential government leader react?

As the media reports it, he issued a statement to the party requesting all members ‘be domiciled’ in Britain for UK tax purposes. He said the requirement for MPs to live in the UK and pay UK tax would become Conservative law at the earliest opportunity after his election.

It’s not a particularly heavy-handed approach from a leader keen to express his moral standing on this issue though. He could have expelled the members until they had issued proof of residency, which they still don’t necessarily have to do.

Voters must already see it as straightforward that an MP who would be paid by the UK state with taxpayer‘s money, and would control where taxpayer’s money is spent, should pay tax themselves. It doesn’t seem fair any other way. To UK citizens, it’s common sense.

When politicians talk about shutting down tax havens, corporations respond with the argument that forcing them to pay corporation tax on overseas income would make them uncompetitive in the international marketplace.

With so many international businesspeople surrounding the Conservatives, it seems unlikely Cameron will put the heat on tax havens to smarten up their act. Instead, he’s more likely to see the benefits of offshore havens for businesses in the UK that operate globally.

The only tipping point could come if media interest in the Conservatives and tax havens increases. To win a popular vote the Conservatives need to be seen as a Party of the People, and the People all pay taxes. Supporting offshore tax jurisdictions wouldn’t do.

If any more individual cases involving non-domiciles or offshore tax arise within the party, Cameron may have to introduce serious legislation to show he’s serious about running a government that doesn’t just take care of the wealthy few at the top. Then Cayman could be in trouble.

Future tax status scandals within the party seem highly unlikely now though, even if they are lurking behind individual members. Cameron has seen how problems like Goldsmith and Lord Ashcroft can arise and he has learnt his lesson from the damage. He acted decisively when they arose late last year, and he’ll keep a stranglehold on his members to make sure it won’t happen again.

Although Obama likes to hit out at the Cayman Islands, actual legislation from the US seems very far away. Like the bankers, offshore islands are an easy target for political points, but legislation is few and far between. This is because they serve a purpose within the global financial framework, however murky, which can’t be denied by politicians.

If Conservatives do take power this May, the man at the helm of UK government is likely to protect and covet tax jurisdictions like the Cayman Islands. It’s in the interests of the members of his party, and the businesses they represent.

So expect a few empty words of disapproval from the leader when cameras are running and journalists are watching, but assume it will be business as usual from the UK for the Cayman Islands.