Where is Britain’s Warren Buffett or Liliane Bettencourt?
By Polly Toynbee, The Guardian
Instead of calls to pay more tax, Britain’s tycoons are looking for ways the rich can make money out of the poor.
Let us now praise (some) rich men and women, the rare few who understand that philanthropy is no substitute for tax. First honours go to Warren Buffett calling on the rich to pay their fair share of tax and rejoin society. "My friends and I have been coddled long enough by a billionaire-friendly Congress. It’s time for our government to get serious about shared sacrifice," he wrote in the New York Times, indignant at being taxed half what his office employees pay.
Let’s praise those 16 French billionaires who asked to be taxed more. "At a time when the government is asking everyone to show solidarity, we feel we must contribute," said L’Oréal heiress Liliane Bettencourt, along with a list of others. French president Nicolas Sarkozy, hardly a man of the left, this week did raise an emergency 3% levy on the rich.
How different things are here, where the chancellor hints at cutting top tax and has just struck a tax-dodgers’ deal with Swiss banks. The cock-a-hoop press release from the Swiss Bankers Association tells how little has changed: Brits who have hidden away ill-gotten or untaxed funds will stay anonymous, hidden from UK tax authorities. Most will pay a paltry 20-25% for what the bankers call "regularising the past". For "regularising" read escaping punishment for previous theft from the Treasury. Christian Aid calls it a disgrace and Richard Murphy, tax campaigner, warns that Britain’s top-rate tax payers can now quite legally bank in Zurich to pay less tax. The Treasury will recoup £5bn but Murphy says that should have been £25bn.
In Britain this week, instead of calls to pay more tax, Sir Ronald Cohen, private equity tycoon, helped launch a plan for the wealthy to invest in projects to improve the poor – not as philanthropy but for a return of between 2.5% and 13%: the government will pay out rewards for future costs saved by social interventions. (Sir Ronald is the man credited with persuading Gordon Brown to cut capital gains tax from 40%, to a disastrous 10%, setting off a private equity and property boom, as the rich rebranded their income as capital gains.) For years Cohen, with charitable intent, has developed social impact bonds, launched , as a way to monetise social problems and raise private revenue to solve them. Four Tory councils will start offering bonds – but so far all crucial details are missing. It’s a novel solution to extreme inequality, inviting the rich to make money out of the poor.
The first pilot began a year ago: bonds were sold to cover a charity’s promise to reduce reoffending by 3,000 prisoners released from Peterborough prison. A Ministry of Justice independent evaluation notes the problems. First and worst, the contractual relationships are highly complicated. Second, funding so far is mostly not private investment but from charitable foundations – money anyway destined for good works. Gaining the confidence of all participants – state, investor and the charity providing the programme – was "time-consuming" and "raises questions about the role and quality of evidence demanded by intermediaries and investors". Future schemes should "take account of the time and skills needed to develop outcome measures".
Assessing statistical significance of results was crucial and yet the right data was difficult to get – even on reoffending. A future risk is the danger of providers "cherry-picking" easy and profitable prospects. Evaluation depended on having a control group of prisoners not in the programme, usually impossible. And which government departments will be billed for the prisoners’ improved outcomes if health, justice, social services, benefits and police are all saved future spending?
This small scheme with a simple target – prisoners reoffending less – raised those dilemmas. Imagine the headache of drawing up watertight contracts that take a "problem family", evaluate their addictions, mental health, education, crime, truancy or unemployment, then put a price on their heads, returning to measure the cash value of any improvements a few years later. Add in top-sliced money wasted on financiers and accountants with time wasted by civil servants and evaluators. Existing family intervention projects (FIPs) are excellent – but take time and money: so will this, while the economy, jobs and wages will ultimately determine success. Here is an extraordinarily cumbersome way of creating a PFI, worse than those recently castigated by the Treasury select committee.
All this springs from a belief that the private sector is always more efficient, whatever its mind-boggling extra costs. After all, the government can always borrow at 1% less than the private sector. Sir Ronald and the government say these are suitable investments for pension funds, ISAs and even junior ISAs where families save for their children. In other words, they are rock-solid safe. That means, as with previous employment schemes and the current work programme, if targets are missed you can bet the state will pay out anyway. So the risk will not be transferred from taxpayer to investor, but the state is borrowing expensive money to pay back later come what may. The public accounts committee will need a beady eye on money wasted on a fancy financial vehicle. If it looks too good to be true, it probably is.
Some charities put their hope in these bonds in this funding drought. Other charities ask why any money their hard work and volunteers save the state isn’t recycled to them instead of skimmed off to investors. This has all the hallmarks of prime political gimmickry, an eye-catching distraction from the £1.3bn the coalition has cut from charities and the 20% cut from existing early interventions such as Sure Start.
If only Sir Ronald would instead rally the rich to pay all their taxes; with no avoidance he would raise far more than his bonds ever will. He might galvanise them to support wealth taxes earmarked for social programmes. He could shame the Philip Green and Lewis Hamilton tax avoiders. Here’s what David Cameron said about rioters: "The root cause of this mindless selfishness is the same thing I have spoken about for years: it is a complete lack of responsibility in parts of our society. People allowed to feel that the world owes them something, that their rights outweigh their responsibilities and that their actions do not have consequences."
Just so, but Britain lacks a Buffett or a Bettencourt to bring the rich back into the responsible society, to reel in their soaring separation from the rest. Investing in poverty bonds for a 13% return isn’t quite the same.